Abstract

An injurer’s activity often exposes multiple potential victims to the risk of harm. We show that under negligence—the tort system’s dominant regime—such victims face a collective-action problem in choosing their activity levels. An increase in one victim’s activity level confers a positive externality on the other victims because it requires the injurer to take more care. Victims will accordingly choose lower activity levels than they would choose if they acted collectively. Interestingly, depending on the efficiency of the injurer’s precautions, victims’ failure to coordinate can either increase or decrease social welfare. We discuss the implications of our analysis for nuisance disputes, the desirability of reimbursement rules, and the efficiency of insurance.

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