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2015 | OriginalPaper | Buchkapitel

1. Introduction

verfasst von : Satish Kumar Jain

Erschienen in: Economic Analysis of Liability Rules

Verlag: Springer India

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Abstract

In the subdiscipline of law and economics, laws are analysed from the efficiency perspective. Economic analysis of liability rules, the subject matter of this monograph, has occupied a prominent place in law and economics right from its inception in the 1960s. The liability rules employed by courts, particularly negligence rule and strict liability, have been extensively analysed in the law and economics literature. In this monograph the totality of all liability rules are analysed from efficiency perspective. This chapter introduces the framework of analysis and the main results presented in the monograph. Among the results obtained in this text the most important are (1) the complete characterization of efficient liability rules when negligence is defined in terms of shortfall from the due care; (2) the complete characterization of efficient incremental liability rules when negligence is defined in terms of shortfall from the due care; (3) the theorem establishing that there is no liability rule which is efficient when negligence is defined in terms of cost-justified untaken precautions; and (4) the inconsistency of decoupled liability with efficiency. In view of these general results, it follows that for efficiency it is necessary that both parties to the interaction are made to internalize the entire harm due to interaction, that the rule must have the closure property with respect to the parties involved in the interaction giving rise to the externality, and that the rule must be immune from strategic manipulation.

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Nächstes Kapitel Efficiency Criteria

Throughout this work, unless used for specific persons, ‘he’ will stand for ‘he or she’, ‘him’ for ‘him or her’, ‘his’ for ‘his or her’, and ‘himself’ for ‘himself or herself’.

Becker (1976, p. 8) states the generality of the economic method in these words:

Indeed, I have come to the position that the economic approach is a comprehensive one that is applicable to all human behavior, be it behavior involving money prices or imputed shadow prices, repeated or infrequent decisions, large or minor decisions, emotional or mechanical ends.

On economic analysis of law in general and the use of economic method for analysing law in particular, see, among others, Baker (1975, 1980), Posner (1975, 1987), Becker (1976), Veljanovski (1980, 1990), Burrows and Veljanovski (1981), Symposium (on Law and Economics) (1985), Cooter (1985, 1991), Landes and Posner (1987), Shavell (1987, 2004), Polinsky (1989), Barnes and Stout (1992a,b), Miceli (1996, 2004), Parisi and Posner (1997), Posner (2007), and Cooter and Ulen (2011). Landes and Posner (1987) and Shavell (1987) are among the most important texts on economic analysis of tort law.

For Pareto-criterion, Pareto-optimality, and Kaldor, Hicks, and Scitovsky compensation principles, see Kaldor (1939), Hicks (1939), Scitovsky (1941), Arrow (1951, 1963), Sen (1970), Chipman (1987), and Feldman and Serrano (2006). On wealth maximization see Calabresi (1980, 1991), Symposium (on Efficiency as a Legal Concern) (1980), Dworkin (1980), Veljanovski (1981), and Posner (1985), among others. In Chap. 2 of this text, efficiency notions and related issues are discussed in detail.

Similarly, when an activity undertaken by a person results in benefit to another person, but this benefit is not a gain to the person undertaking the activity, a positive externality is said to exist.

For a lucid exposition of the Coase theorem, see Demsetz (1972). There is a vast literature on the interpretation, validity, and applicability of the Coase theorem and related issues. See, among others, Nutter (1968), Arrow (1969), Mishan (1971), Baumol (1972), Regan (1972), Inada and Kuga (1973), Samuels (1974), Baker (1975), Cheung (1978, 1980), Cooter (1982), Barzel (1989), Eggertsson (1990), Allen (1991), and Medema (1994). For surveys of literature on the Coase theorem, see Medema and Zerbe (2000), and Parisi (2005).

Let a < b. We use the standard notation to denote:

{x∣a ≤ x ≤ b} by [a, b], {x∣a ≤ x < b} by [a, b), {x∣a < x ≤ b} by (a, b], {x∣a < x < b} by (a, b), {x∣x ≥ a} by [a, ∞), {x∣x > a} by (a, ∞), {x∣x ≤ a} by (−∞, a], and {x∣x < a} by (−∞, a).

The literature on the efficiency of liability rules is quite vast. See in addition to the pioneering contribution by Brown (1973), Posner (1972, 1973), Epstein (1973), Rabin (1976, 1981), Schwartz (1978, 1981), Rizzo (1980), Shavell (1980, 1987, 2007), Assaf (1984), Haddock and Curran (1985), Cooter and Ulen (1986), Craswell and Calfee (1986), Rea (1987), Rubinfeld (1987), Hylton (1990), Orr (1991), Symposium (on The Economics of Liability) (1991), Gilles (1992), Chung (1993), Goldberg (1994), Endres and Querner (1995), Wittman et al. (1997), Feldman and Frost (1998), Jain and Singh (2002), Bar-Gill and Ben-Shahar (2003), Kim (2004), Dari-Mattiacci (2005), Dari-Mattiacci and De Geest (2005), Dari-Mattiacci and Parisi (2005), Singh (2007a,b), and Jain (2010a). The list is by no means exhaustive.

The formal statement of the characterization theorem and its proof are given in Chap. 3.

Shavell (1980).

Jain (2012).

See Grady (1983, 1984, 1989) on this.

Chapter 5 is concerned with this way of defining negligence and its implications for the efficiency of liability rules.

Jain (2006).

The necessary and sufficient conditions for incremental liability rules were first obtained in Jain (2009a). Incremental liability rules from efficiency perspective are discussed in Chap. 6 of the text.

The efficiency of the incremental version of the negligence rule for the unilateral case was established in Kahan (1989). A proof of the efficiency of the incremental negligence rule for the bilateral case is provided in Jain (2010a). Chapter 7 of this text contains a detailed efficiency analysis of both the versions of the negligence rule, for the unilateral as well as the bilateral case. The analysis is carried out with negligence defined as shortfall from due care as well as with negligence defined as existence of a cost-justified untaken precaution.

Jain (2010b).

The matters pertaining to strategic manipulation are discussed in greater detail in Chap. 7.

Let the loss in case of accident when the victim’s care is c and the injurer’s care is d be given by H(c, d). Let π(c, d) denote the probability of accident when the care levels of the victim and the injurer are c and d, respectively. Let social costs be minimized when victim’s care level is c ^∗ and injurer’s care level is d ^∗. Let c ^∗ and d ^∗ be the due care levels for the victim and the injurer, respectively. Then optimal loss is given by H(c ^∗, d ^∗) and adjusted optimal loss by \(H(c^{{\ast}},d^{{\ast}})\frac{\pi (c^{{\ast}},d^{{\ast}})} {\pi (c,d)}\). If H(c, d) is greater than \(\theta H(c^{{\ast}},d^{{\ast}})\frac{\pi (c^{{\ast}},d^{{\ast}})} {\pi (c,d)}\), then excess loss is given by \(H(c,d) -\theta H(c^{{\ast}},d^{{\ast}})\frac{\pi (c^{{\ast}},d^{{\ast}})} {\pi (c,d)}\) and specified loss by \(\theta H(c^{{\ast}},d^{{\ast}})\frac{\pi (c^{{\ast}},d^{{\ast}})} {\pi (c,d)}\). If H(c, d) is less than or equal to \(\theta H(c^{{\ast}},d^{{\ast}})\frac{\pi (c^{{\ast}},d^{{\ast}})} {\pi (c,d)}\), then excess loss is 0 and specified loss is H(c, d).

See Jain and Kundu (2004).

Chapter 8 analyses the class of decomposed liability rules corresponding to the negligence rule.

The first result with one victim and multiple injurers is due to Landes and Posner (1980). They showed the efficiency of the rule of negligence with one victim and multiple injurers. Multiple-tortfeasor context was also analysed in Tietenberg (1989), Kornhauser and Revesz (1989), and Miceli and Segerson (1991).

Jain (2009b).

Chapter 9 contains a detailed treatment of issues relating to multiparty interactions.

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Titel: Introduction
verfasst von: Satish Kumar Jain
Verlag: Springer India
Buch: Economic Analysis of Liability Rules
Print ISBN: 978-81-322-2028-2

Electronic ISBN: 978-81-322-2029-9

Copyright-Jahr: 2015
DOI: https://doi.org/10.1007/978-81-322-2029-9_1