The reasonable person standard: a new perspective on the incentive effects of a tailored negligence standard

Abstract

This paper compares the effects of a uniform reasonable person standard to a due care standard that is tailored to individual capabilities. This is done in a framework in which potential injurers can invest in developing greater capability. I show that the uniform reasonable person standard may induce better or worse investment incentives, depending on whether greater capability is represented by reduced precaution costs or reduced accident costs. In so doing, I show that recent results showing that the reasonable person standard creates better investment incentives are not general, but depend on the model of injurer capacity used. I go on to show the availability of “over-tailoring” of the negligence standard as a novel form of subsidy for investment in care technology. In some circumstances, holding an injurer to a lower standard of care than would be optimal in a perfectly static world can result in a trade-off between dynamic and static efficiency that is superior to that generated by either a uniform or tailored standard of care.