8. Decomposition of Loss and a Class of Negligence Rules

Under the standard negligence rule, the entire accident loss is borne by the injurer if he is negligent, and the entire accident loss is borne by the victim if the injurer is nonnegligent. The apportionment of loss thus has an all-or-none character. In this chapter it is shown that accident loss can be decomposed in two parts such that while the apportionment of one part between the parties has bearing on efficiency, the apportionment of the other part has no efficiency implications. The part of accident loss which plays no role in providing appropriate incentives to the parties for taking due care can therefore be apportioned on non-efficiency considerations without in any way compromising the social goal of efficiency. The chapter thus shows that in the context of the negligence rule the distributive considerations can be brought in to a certain extent without sacrificing efficiency. The results obtained for the negligence rule are generalizable to other liability rules satisfying the condition of negligence liability, i.e. to liability rules which are efficient