Screening in Courts: On the Joint Use of Negligence and Causation Standards

Abstract

In legal systems all over the world, injurers are held liable only when the probability of having caused an accident exceeds a critical threshold (causation standard) and when behaving negligently. In a complete information framework, the joint use of the two instruments is puzzling as both whether a potential injurer has taken due care and whether he meets a specific causation standard depends only on his care level. We explain this puzzle with private information about injurers' avoidance costs, and we show that the joint use of both instruments can be interpreted as a menu of options to induce self-selection of different cost types. Thereby, low-cost firms have higher incentives to take due care, whereas high-cost firms are negligent and aim at escaping liability via the causation standard. We derive conditions under which the joint use of both instruments outperforms the optimal single-instrument policy.