Potential Injurers Research Articles

Accident avoidance and settlement bargaining: The role of reciprocity

This paper explores how reciprocity concerns of potential accident victims influence potential injurers’ precautions before an accident and victims’ settlement behavior after an accident. In our framework, a strictly liable injurer privately informed about the probability of losing in trial chooses either high or low care and, in the event of an accident, the victim demands a settlement amount from the injurer. We find that victims’ intention-based reciprocity concerns tend to increase both the level of precautions and the likelihood of trial and that the impact of reciprocity concerns on equilibrium outcomes depends on the legal cost allocation rule.

Do Good Citizens Need Good Laws? Economics and the Expressive Function

Abstract We explore how adding prosocial preferences to the canonical precaution model of accidents changes either the efficient damages rule or the harm from accidents. For a utilitarian lawmaker, making the potential injurer sympathetic to the victim of harm has no effect on either outcome. On the other hand, making injurers averse to harming others reduces the harm from accidents but has no effect on efficient damages. For an atomistic lawmaker — one who excludes prosocial preferences from social welfare — cultivating a taste for either harm aversion or perfect sympathy can reduce efficient damages, though neither has any effect on the amount of harm from accidents. On the other hand, causing people to act as if they are averse to harm creation, such as out of habit or moral obligation, reduces both the efficient amount of damages and total harm. In general, encouraging either a distaste for, or moral commitment against, harm creation is useful while inculcating sympathy for victims of harm is not.

An Information-Production Theory of Liability Rules

As a matter of law, the negligence versus strict liability debate is over, and negligence has clearly won. Yet the fact that our accident compensation system is fault-based continues to attract much opposition in populist sentiment and academic circles. Standard economic analysis views strict liability as preferable to negligence, as it is easier to administer and leads to better risk reduction: strict liability induces injurers not only to optimally invest in precaution but also to optimally adjust their activity levels. Standard analysis thus views the prevalence of negligence as unjustifiable on efficiency grounds. This Article challenges the conventional wisdom and clarifies an efficiency rationale for negligence, by spotlighting the information-production function of tort law. Tort litigation affects behavior not just directly, through imposing sanctions, but also indirectly, through producing information on how the disputants behaved. Third parties can then use information from litigation to decide whether to avoid the defendant or not. And the choice of liability rules dictates the magnitude and scope of these informational effects: negligence produces more valuable information on the behavior of market actors than strict liability does. Litigation under negligence produces granular information on whether the defendant could have reasonably avoided the harm, how she fares relative to others in her profession, and so on. Such information, to the extent it becomes public, allows outside observers to infer whether the past accident is indicative of the defendant’s future behavior or not, which in turn affects their willingness to do business with her going forward. A physician found negligent may lose future patients, a seller failing the “consumer expectations” test in product liability may lose future consumers, and so on. Litigation under strict liability produces much coarser information, namely, that a harm occurred as a result of the defendant’s activity. It rarely provides outside observers with information on the competence or integrity of the defendant vis-a-vis her peers. The efficiency rationale for negligence thus stems from facilitating more robust market discipline. In contrast to what influential accounts in economic analysis suggest, negligence does affect the activity levels of potential injurers, albeit from the demand side: by warning third parties, it reduces market demand for the services of risky actors. This Article explains how information from litigation translates to reputation, identifies the circumstances under which these reputational effects are more (or less) pronounced, and uses the reputational perspective to reevaluate timely debates such as the desirability of secret settlements or how to set the liability standard for autonomous vehicle accidents.

Shared Liability and Excessive Care

Abstract Extensive literature has shown that assignment of liability for a single harm to multiple injurers undermines incentives for optimal care. As each potential injurer anticipates bearing only a fraction of the harm, incentives to take precautions are often diluted. The dilution-of-liability concern has led theorists to propose sophisticated apportionment rules to restore optimal incentives. This article demonstrates, however, that shared liability also gives rise to the converse risk, namely, it induces injurers—whether subject to negligence or strict liability—to invest excessively in care. Furthermore, unlike its extensively analyzed counterpart, the risk of excessive care arises under any apportionment regime. While apportionment rules cannot eliminate the problem of excessive care, we suggest other means by which the problem can be addressed (JEL D62, D86, K13).

Tailoring Negligence Standards to Accident Records

Traditional economic models of accident law are static and assume homogeneous individuals under perfect information. This paper relaxes these assumptions and presents a dynamic unilateral accident model in which potential injurers differ in their probability of accident. Information about individual risk-type is hidden from the social planner and from each potential injurer. We ask how negligence standards should be optimally tailored to individual risk-type when this is imperfectly observable. We argue that information about past accident experiences helps to efficiently define negligence standards, narrowing the distance between first-best standards perfectly tailored to individual risk-type and third-best averaged standards. We finally show that negligence standards refined on the basis of past accident experiences and of individual risk-type do not undermine private incentives to undertake due care.

Implementation of Strict Liability Principle in Civil Law Enforcement in Environment Law files as Consequence of Forest and Land Fire in Indonesia Justice Practice

Strict liability is a concept of civil liability that does not require mistakes made by the defendant but rather defendant has caused losses to the plaintiff. Strict liability can help enforcement of environmental law that is oriented towards prevention. This is because strict liability can change the behavior of potential injurer to be more conscientious in performing their activities. The effectiveness of strict liability in supporting these ideals can certainly be realized if we first can correctly interpret the concept of strict liability. Strict liability is well known in the practice of civil justice in Indonesia in relation to the elements of error in the lawsuit based on Acts Against the Law in Article 1365 of the Civil Code (BW). Although the elements of objective and subjective errors are irrelevant if the action of the perpetrator is an activity with risk that whether the perpetrator has made a preventive effort and has been careful does not meant that risk is eliminated (abnormally dangerous activity). The application of strict liability in relation to civil law enforcement in the field of environmental law, especially as a result of forest and land fires in judicial practices in Indonesia is based on the provisions of Article 88 of Law Number 32 of 2009 concerning Environmental Protection and Management (UUPPLH) as in the case of land fires in PT. (Incorporated) Arjuna Utama Sawit which runs its business activities in controlling and opening land for oil palm plantations.

Filtering Tort Accidents

Abstract Conventional wisdom in the economic analysis of tort law holds that legal errors distort incentives, causing behavior to depart from the optimum. If potential injurers know that courts err, they may engage in less or more than optimal precaution. This article revisits the effect of judicial error on the incentives of potential injurers by identifying a heretofore-neglected filtering effect of uncertainty in settings of imperfect judicial decision-making. We show that when courts make errors in the application of the liability standards, uncertainty about erroneous decision-making filters out the most harmful torts but leaves unaffected less harmful accidents. Our insight applies to various procedural and institutional aspects of legal adjudication, including the randomization of case assignment, the strength of precedent, and the use of standards versus rules.

Filtering Tort Accidents

Conventional wisdom in the economic analysis of tort law holds that legal errors distort incentives, causing behavior to depart from the optimum. If potential injurers know that courts err, they may engage in less or more than optimal precaution. By contrast, when courts always set the care standard at the socially efficient levels, injurers are incentivized to take due care. This article revisits the effect of judicial error on the incentives of potential injurers by identifying a heretofore-neglected filtering effect of uncertainty in settings of imperfect judicial decision-making. We show that when courts make errors in the application of the liability standards, legal uncertainty filters out the most harmful torts but leaves unaffected less harmful accidents. Our insight applies to various procedural and institutional aspects of legal adjudication, including the randomization of case assignment, the strength of precedent, and the use of standards versus rules.

Fines versus Damages: Experimental Evidence on Care Investments

This paper studies the differential effects of fines and damages on people’s investment in accident prevention. We report results from a laboratory experiment in which monetary payoffs are maintained across the two policy instruments. While standard theory predicts no difference in behavior, we find that potential injurers invest substantially more money in accident prevention when they are subject to damages instead of a fine. We discuss possible behavioral channels that may explain our findings.

Judge’s gate-keeping power and deterrence of negligent acts: an economic analysis of Twombly and Iqbal

Following its landmark decisions in Bell Atlantic v. Twombly and Ashcroft v. Iqbal, the Supreme Court allows federal judges to dismiss cases when the plaintiff’s allegations are conclusory or implausible, thereby increasing the judges’ discretionary power in pleading stages of litigation. Using a stylized litigation model, I find the conditions under which the ruling improves upon litigation outcomes by simultaneously raising deterrence and reducing litigation costs and error costs. In particular, I demonstrate the ways in which the ruling’s effect depends on the correlation between the potential injurers’ primary behavior and the strength of cases filed at trial courts.

Financially-constrained lawyers: An economic theory of legal disputes

Financial constraints reduce the lawyer's ability to file lawsuits and bring cases to trial. As a result, access to justice for victims, pretrial bargaining, and potential injurers' precaution might be affected. We study civil litigation using a model that allows for asymmetric information, financially-constrained lawyers, third-party lawyer lending, and a continuum of plaintiff's types. We contribute to the economic analysis of law by generalizing seminal models of litigation (Bebchuk, 1984, 1988; Katz, 1990), offering the first formal definition of access to justice, and presenting comprehensive social welfare analysis of relevant public policy. We provide complete equilibrium characterization and identify necessary conditions for the existence of the mixed- and pure-strategy PBE. Access to justice is denied to some victims under the mixed-strategy equilibrium. We then study the social welfare effects of policies aimed at relaxing lawyers' financial constraints, and identify a necessary and sufficient condition for a welfare-enhancing effect.

Eliciting Multi-Dimensional Care through Liability and Regulation

Abstract This paper examines the incentive performance of liability and regulation when a potential injurer can take two types of preventative care, one of which is observed and one of which is not. The problem is studied in a general asymmetric information model, where settlement behavior is endogenous and which incorporates an uncertain legal standard. Contrary to existing literature, we find (1) a shift to a negligence rule may have a perverse effect on unobserved care; (2) uncertainty in legal standards may be socially beneficial as it provides a relatively good incentive for unobserved care; (3) a regulation may not be effective if preventative care efforts are substitutes but is effective if they are complements; (4) an increase in settlement rate may or may not increase the level of care, depending on the cause of the increase; (5) a “decoupling” arrangement with a feature that the defendant pays more than the plaintiff recovers, reduces legal costs and is therefore socially beneficial.

Financially-Constrained Lawyers

Financial constraints reduce the lawyer's ability to file lawsuits and bring cases to trial. As a result, access to justice for true victims, bargaining impasse, and potential injurers' precaution might be affected. This paper studies civil litigation using a strategic model that allows for asymmetric information, financially-constrained lawyers, third-party lawyer lending, and a continuum of plaintiff's types. We provide methodological contributions to the law and economics literature by generalizing seminal models of legal disputes (Katz, 1990; Bebchuk, 1988). We present formal analysis of the three mutually-exclusive perfect Bayesian equilibrium classes: Mixed-strategy, pure-strategy, and boundary equilibria. We identify necessary conditions for the existence of each class. In particular, the mixed-strategy class arises in a state of the world characterized by lawyers facing strong financial constraints or defendants facing a high threat of frivolous lawsuits. Across equilibrium classes, accidents do occur and bargaining impasse is observed. Access to justice is denied to some true victims under the mixed-strategy and boundary equilibria. We then extend our tractable model to study the social welfare effects of policies aimed at relaxing lawyers' financial constraints. We establish sufficient conditions for a welfare-reducing effect: When the positive impact on access to justice is weak and the potential injurers are overdeterred, these policies are welfare reducing.

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

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.

Liability, Insurance and the Incentive to Obtain Information about Risk

We examine the incentives to obtain information about risk under strict liability and negligence rules when insurance is available. Information helps reduce the expected cost of accidents, but also exposes the potential injurer to classification risk. As a result, the social value of information may be negative. Under both strict liability and negligence, the private value of information may also be negative when insurance is available.

The Market in Unmatured Tort Claims: Twenty-Five Years Later

In an article in 1989 in the Virginia Law Review, Professor Robert Cooter argued for changes in the law that would facilitate the development of a market in unmatured tort claims. An unmatured tort claim is a potential claim that a potential victim has before any injury has occurred. Cooter proposed that potential victims have the right to sell their unmatured tort claims. That is, Cooter proposed that potential victims be allowed to sell their right to sue even before an accident or injury ever occurs. Even twenty-five years later, the proposal remains both bold and imaginative, and yet it remains unadopted in any jurisdiction. There is a reason for this. In this Article, I reexamine the proposal as to its likely intended and unintended effects. The unintended effects were overlooked in the original article because of its static analysis. A dynamic analysis reveals these unintended effects. These effects do not invalidate the proposal. I conclude that Cooter’s proposal continues to have merit, but several modifications are necessary if the proposal is to succeed. Without these modifications, the proposal will fail to accomplish its goals and will have serious adverse unintended effects. In short, this Article argues for the adoption of measures to permit the development of a limited market in unmatured tort claims. The primary limitation is the exclusion of potential injurers in the market for their own unmatured tort claims. Other modifications include utilizing a different measure of damages and a prohibition on liability limiting agreements.

Lapses of Attention in Medical Malpractice and Road Accidents

A doctor who lapses and injures her patient, and a driver who lapses and causes an accident, are liable under negligence law for the harm done. But is not necessarily negligence, since people from time to time. We show that tort liability for reasonable lapses distorts doctors’, drivers’, and manufacturers’ incentives to take care. Furthermore, such liability provides potential injurers with incentives to substitute activities which are less prone to lapses with activities which are more prone to lapses, even if such substitution is inefficient. We propose several solutions to the inefficiencies that result from liability for lapses, and argue that under certain circumstances injurers should be entitled to invoke a lapse defense.

Lapses of Attention in Medical Malpractice and Road Accidents

A doctor who lapses and injures her patient, and a driver who lapses and causes an accident, are liable under negligence law for the harm done. But lapse is not necessarily negligence, since reasonable people lapse from time to time. We show that tort liability for “reasonable” lapses distorts doctors’, drivers’, and manufacturers’ incentives to take care. Furthermore, such liability provides potential injurers with incentives to substitute activities which are less prone to lapses with activities which are more prone to lapses, even if such substitution is inefficient. We propose several solutions to the inefficiencies that result from liability for lapses, and argue that under certain circumstances injurers should be entitled to invoke a “lapse defense.”

Litigation with Legal Aid versus Litigation with Contingent/Conditional Fees

AbstractIn the last few years, legal aid has been much debated, especially in the European Union. Our aim is to determine in a tort litigation model the impact of legal aid upon plaintiffs’ decision whether to sue, plaintiffs’ level of expenses at trial and the level of deterrence of potential injurers. We study the two most common types of legal aid: fixed and proportional. Whatever the system, we show that increasing legal aid induces more cases filed and more deterrence (fewer accidents). Then we compare these incentives with those given by the contingent/conditional fees systems. We show that the incentives to bring suit are higher in the contingent/conditional fees systems, but incentives to take care are higher with legal aid since legal expenses from the plaintiff are higher.

Tailoring the Negligence Standard and a New Model of Injurer Skill

The conventional law and economics method of modeling greater “capacity” in potential injurers – that especially capable individuals have lower marginal precaution costs – may be wrongheaded and misleading in many common accident scenarios. This Article formulates an alternative model, where precaution costs do not vary with injurer capacity, but where accident costs at a given level of care are lower for especially “capable” individuals. In particular, this model may better reflect reality and doctrine where 1) courts assess “due care” by examining discrete actions or precautions indicative of care; and 2) the relevant precautions are nondurable, such that the primary cost imposed is the opportunity cost of time or attention (which is unlikely to be lower for “skilled” injurers). The alternative model suggests that, contrary to the conventional wisdom, more capable injurers should be held to a lower standard of care whenever possible, and that the failure to do so serves as an impediment to innovation and development of skill. Finally, the new model also suggests a novel method of providing incentives to invest in innovation and skill.