Negligence, Strict Liability and Collective Action

Abstract

Conventional wisdom in law and economics has long been that negligence-based regimes induce optimal care but encourage excessive activity. This paper demonstrates that when behavior involves multiple victims or injurers, negligence-based regimes can create a collective action problem which results in sub-optimal care and insufficient activity. As we show, investments in effective precaution often become cost-justified only when multiple parties engage in high activity levels. If parties are not coordinated, however, each may choose a low activity level to minimize her risk of harm. This collective action problem provides several insights for policymakers and legislatures regarding the design of optimal liability rules. It sheds new light on the efficiency of applying negligence, strict liability, or a combination of these two regimes; presents an overlooked virtue of damage caps and negligence per-se rules; and justifies doctrines that limit joint tortfeasors’ exposure to liability.