Loss-Sharing Between Non-Negligent Parties
Publication
Journal of Theoretical and Institutional Economics
Volume
170
Page
571
Year
2014
Abstract
In this paper, we study the effects and desirability of legal rules that allow the sharing of an accident loss between a non-negligent injurer and his non-negligent victim. In order to identify the virtues and limits of loss-sharing rules, we begin by considering the effect of a loss-sharing regime on parties' incentives. We address an unresolved issue in the literature, exploring whether loss-sharing in equilibrium undermines the parties' primary care incentives. We establish the conditions under which loss-sharing may be desirable and characterize the regime providing the best overall incentives to minimize the social cost of accidents. Our results indicate that loss-sharing may indeed be desirable in a vast range of situations. The results are later extended to consider the effect of parties' uncertainty in a loss-sharing regime and reveal that loss-sharing may at the same time be desirable and unnecessary in real-life accident law.
Recommended Citation
Francesco Parisi, Giuseppe Dari-Mattiacci, and Bruno Lovat, Loss-Sharing Between Non-Negligent Parties, 170 571 (2014), available at https://scholarship.law.umn.edu/faculty_articles/715.
