On the Joint Use of Liability and Safety Regulation

Abstract

Abstract. The efficiency of two different means of controlling hazardous economic activities, namely ex post liability for harm done and ex ante safety regulation, is re-examined. Some researchers have stressed that the complementary use of these two instruments can be socially advantageous. Here it is argued that the models which have been built in order to support this view crucially depend on the assumption that there are persistent enforcement errors. It is demonstrated that such a rather unsatisfactory assumption is not needed if wealth varies among injurers.

Smart Products: Liability, Timing of Market Introduction, and Investments in Product Safety

“…They argue that, by credibly excluding low realizations from the set of relevant safety levels, such regulation can improve overall efficiency attained in equilibrium. Our results also complement the findings from previous studies analyzing the joint use of safety regulation and liability rules (see e.g.Shavell, 1984a,b;Kolstad et al, 1990;Schmitz, 2000). This literature shows that combining the two instruments in an optimal way can lead to strictly higher welfare compared to relying on one instrument only.…”

“…In this respect, we also contribute to the literature which analyzes (in static models, without R&D investments and innovation activities) under which circumstances a policy which combines ex ante instruments (e.g., safety regulation) with ex-post instruments (e.g., liability rules) can be welfare-superior compared to the use of single instrument (see e.g.,Shavell, 1984a,b;Kolstad et al, 1990;Schmitz, 2000).12 See alsoViscusi (1991),Viscusi and Moore (1991), and Viscusi (2012).…”

Modelling the choice between regulation and liability in terms of social welfare

“…They conclude also that the joint use of liability and regulation may be the best alternative. Schmitz (2000) criticizes those analyses and questions the use of liability given that regulation by itself can always implement socially optimal behaviour. In Shavell (1984b), the joint use of liability and regulation as complementary instruments follows from the limited efficiency of liability due to enforcement errors and the shunning of liability.…”

Environmental liability

“…These complementarities between tort law and regulation have more particularly been addressed by Rose-Ackerman (1992a, 1992b, Faure and Ruegg (1994) and Kolstad, Ulen and Johnson (1990). See on these issues also Arcuri (2001), Burrows (1999), Porrini (2001, 2002), Faure (2007a), Ogus (2007) and Schmitz (2000). Rose-Ackerman (1995a has also compared US and European experiences in using regulation versus tort law in environmental policy.…”