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The Signal-Tuning Function of Liability Regimes

Claude Fluet and Murat C. Mungan

Cahiers de recherche from Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques

Abstract: Fault-based liability regimes require an inquiry into the nature of the defendant’s conduct, whereas this type of inquiry is absent in strict liability regimes. Therefore, verdicts reached through fault-based liability regimes can convey superior information compared to verdicts reached through strict liability regimes. Further reflection reveals that this advantage is enjoyed by fault-based liability regimes only if the evidence related to the nature of defendants’ actions is such ciently informative. Otherwise, admitting such evidence can add noise to the information conveyed through verdicts. Therefore, liability regimes have a function of tuning signals conveyed on to third parties, which, in turn, causes deterrence effects by a¤ecting the informal sanctions imposed on defendants who are found liable. We construct a model wherein this function is formalized, and we identify the optimal liability regime and burden of proof as a function of various factors (e.g. the commonality of the harmful act, and the informativeness of the evidence).

Keywords: Informal sanctions; reputational sanctions; fault-based liability; strict liability; burden of proof (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-law
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:lvl:crrecr:1707

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