Sharing Residual Liability: 'Cheapest Cost Avoider' Revisited

Abstract

Economic models of tort law evaluate the efficiency of liability rules in terms of care and activity levels. A liability regime is optimal when it creates incentives to maximize the value of risky activities net of accident and precaution costs. The allocation of primary and residual liability allows policy makers to induce parties to undertake socially desirable care and activity levels. Traditionally, tort law systems have assigned residual liability either entirely on the tortfeasor or entirely on the victim. In this paper, we unpack the cheapest-cost-avoider principle to consider the virtues and limits of loss-sharing rules in generating optimal (second-best) incentives and allocations of risk. We find that loss sharing may be optimal in the presence of countervailing policy objectives, homogeneous risk avoiders, and subadditive risk, which potentially offers a valuable tool for policy makers and courts in awarding damages in a large number of real-world accident cases.

Law and Economics as We Grow Younger

“…The question then became, when is it desirable to spread the accident loss, rather than adopting the all-or-nothing solutions of conventional tort rules? This question was addressed in , and more extensively in a paper published in the Journal of Legal Studies with my former student, and now colleague, Alice Guerra and with my Bologna colleague, Emanuela Carbonara (Carbonara et al, 2016). In that paper, we recast the cheapest cost avoider principle in light of the possibility of spreading accident losses between non-negligent parties.…”

Self-regulation of fundamental rights? The EU Code of Conduct on Hate Speech, related initiatives and beyond

“…114 The concept of duty of care may for the moment be the most established one among these approaches. In addition, duty of care is linked with both considerations of moral responsibility 115 and economic models 116 of liability. It is already widely applied throughout a variety of regulatory fields in both common and civil law and has also found its way into CJEU case law.…”

Equilibria under Liability Rules: How the Standard Claims Fall Apart

“…332-33), Dari-Mattiacci (2002), Delhaye (2002), , Parisi and Fon (2004), Singh (2006), Parisi and Singh (2010). For a discussion, see Dari-Mattiacci, Lovat and Parisi (2014, page 572), Carbonara, Guerra and Parisi (2016), and Miceli (2017, Ch 2).…”

“…It has served as a standard model for much of the subsequent works, including Shavell (1987), Endres (1989), Miceli (1997 p. 29), Cooter and Ulen (2004, pp. 332-33), Dari-Mattiacci (2002), Delhaye (2002), , Parisi and Fon (2004), Singh (2006), Singh (2009), Parisi and Singh (2010), Dari-Mattiacci, Lovat and Parisi (2014), Guerra (2015), Carbonara, Guerra and Parisi (2016), Miceli (2017, Ch 2) among others. 1 For the most part, existing literature on the subject has focused on examining properties of equilibrium outcomes under the standard rules -the rules of strict liability, no-liability, and the negligence liability based rules; namely, the rule of simple negligence, the rule of negligence with a defense of contributory negligence, the rule of negligence with a defense of comparative negligence, and the rule of strict liability with a defense of contributory negligence.…”

“…1 For the most part, existing literature on the subject has focused on examining properties of equilibrium outcomes under the standard rules -the rules of strict liability, no-liability, and the negligence liability based rules; namely, the rule of simple negligence, the rule of negligence with a defense of contributory negligence, the rule of negligence with a defense of comparative negligence, and the rule of strict liability with a defense of contributory negligence. In important contributions, Dari-Mattiacci, Lovat and Parisi (2014) and Carbonara, Guerra and Parisi (2016) have extended the analysis beyond the standard rules to examine the efficiency of rules that permit sharing of liability between non-negligent parties.…”