Abstract
This paper investigates the ability of liability rules to allocate uncertainty. Uncertainty includes both the standard risk and the ambiguity that arises when the causal link between conduct and harm is not conclusive, as is frequently the case with toxic torts. The optimal features of the strict liability rule and the negligence rule are obtained. Strict liability proves superior to negligence when harms are uncorrelated and victims are at least as uncertainty-averse as the injuring party. Negligence is preferable when harms are correlated and victims are numerous. Thus, negligence proves particularly apt to address systematic harms, such as those arising from design defects and warning failures. The main results also apply when accidents are bilateral and when parties can purchase insurance from an uncertainty-averse insurer.
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