Legal Liability when Individuals Have Moral Concerns

Abstract

We incorporate normative motivations into the unilateral precaution model of tort. Individuals have moral concerns about causing harm and would like others to believe that they do. In the absence of legal liability, causing harm suggests low concerns and is therefore damaging to one's social image, which feeds back into incentives to take precautions. These nevertheless remain suboptimal when informal motivations are not strong enough for injurers to willingly compensate victims ex post. By contrast, perfectly enforced legal liability crowds out informal motivations completely (e.g., tortfeasors suffer no disesteem) but precautions are then efficient. Under imperfect enforcement, informal motivations and legal sanctions complement one another. With strict liability, individuals held liable suffer disesteem, there is some motivational crowding-out but no net crowding-out with respect to overall incentives. Under the negligence rule, there is motivational crowding-in when image concerns induce bunching on the legal due care standard. The Author 2012. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.