Abstract
This paper explores how reciprocity concerns of potential accident victims influence potential injurers’ precautions before an accident and victims’ settlement behavior after an accident. In our framework, a strictly liable injurer privately informed about the probability of losing in trial chooses either high or low care and, in the event of an accident, the victim demands a settlement amount from the injurer. We find that victims’ intention-based reciprocity concerns tend to increase both the level of precautions and the likelihood of trial and that the impact of reciprocity concerns on equilibrium outcomes depends on the legal cost allocation rule.
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