Abstract
Externality-generating behavior is typically controlled by legal standards of behavior. A negligence tort regimes sets due care standards; a regulatory regime dictates regulatory standards of behavior. The principal purpose of these legal mechanisms is to control individual behavior. This study shows that, typically, these legal mechanisms generate an additional, incidental, distributive outcomes. In reality, tort victims as well as externality victims are heterogeneous in the potential harm they would suffer if injured, but potential injurers cannot observe ex ante individualized harm (for example, in cases of car accidents or pollution). Therefore, a uniform, rather than individualized, legal standard of behavior is applied in tort or under regulatory schemes. This paper shows that a negligence (or regulatory) regime with a uniform care standard redistributes among potential victims, whereas an equally (second-best) efficient strict liability regime does not. This overlooked observation instigates several normative implications.
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