Economy

Download Economics of Public and Tax Law (Encyclopedia of Law and by Boudewijn Bouckaert, Gerrit De Geest, PDF

By Boudewijn Bouckaert, Gerrit De Geest,

This article is quantity IV of a five-volume reference paintings that surveys the full literature on legislation and economics. The entries encompass parts: a evaluation of the literature by means of an expert within the box and a bibliography which covers many of the released fabric within the specific quarter.

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Extra resources for Economics of Public and Tax Law (Encyclopedia of Law and Economics , Vol 4)

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Under strict liability, the injurer internalises the total amount of social costs and reduces the level of activity to the socially optimal level. So far the results suggest that the rule of strict liability achieves socially optimal results provided that damages are set at the perfectly compensatory level. What happens, though, when an accident is bilateral requiring both parties to take precaution against accidents? Now the efficiency of the rule of strict liability becomes problematic because, even though strict liability may at first create the right incentives for potential injurers, it will create an incentive problem for potential victims and will in return lead injurers to exercise suboptimal care.

Another important advantage of the rule of strict liability emerges when allowing for variable levels of activity. Under negligence, the injurer has no reason to consider the effect that her activity has on others because she can escape liability by taking due care. Thus, the injurer will choose too high a level of activity. Under strict liability, the injurer internalises the total amount of social costs and reduces the level of activity to the socially optimal level. So far the results suggest that the rule of strict liability achieves socially optimal results provided that damages are set at the perfectly compensatory level.

Again, we obtain a socially optimal Nash equilibrium as a result. Strict Liability with the Defence of Relative Negligence This rule is basically the same as the previous one with the following difference: if the victim is found negligent because she failed to take due care, she will have to bear only a fraction of her losses. If the fraction depends on the victim's actual level of care relative to due care, if it is sufficiently large, and if the courts choose the legal level of care equal to the socially optimal level of care, then the outcome is socially efficient.

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