Chapter

Decomposition of Accident Loss and Efficiency of Negligence Rule

Satish K. Jain and Rajendra P. Kundu

in Dimensions of Economic Theory and Policy

Published in print October 2011 | ISBN: 9780198073970
Published online September 2012 | e-ISBN: 9780199081615 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780198073970.003.0014
Decomposition of Accident Loss and Efficiency of Negligence Rule

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Negligence rule is a commonly used liability rule for apportioning accident loss between victim and injurer. Under the negligence rule, the entire accident loss is borne by the injurer if he is negligent and by the victim if the injurer is non-negligent. The injurer is negligent if his care level is less than the due care level, but not if his care level is more than the due care level. This chapter examines whether distributive considerations can be brought in without affecting the efficiency of the negligence rule. It shows that in providing correct incentives to the parties, part of accident loss can be apportioned between two parties regardless of their care levels. When providing correct incentives to the parties, what is crucial is the apportionment of the accident loss over and above the adjusted optimal loss.

Keywords: accident loss; injurer; victim; negligence rule; distributive considerations; incentives; optimal loss

Chapter.  4700 words. 

Subjects: Microeconomics

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