Optimal negligence rule under limited liability

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Ganuza, Juan-José; Gómez Pomar, Fernando. Optimal negligence rule under limited liability. 2003
To cite or link this document: http://hdl.handle.net/10230/670
dc.contributor.author Ganuza, Juan-José
dc.contributor.author Gómez Pomar, Fernando
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.issued 2003-03-01
dc.identifier.uri http://hdl.handle.net/10230/670
dc.description.abstract We study the standard economic model of unilateral accidents, in its simplest form, assuming that the injurers have limited assets.We identify a second-best optimal rule that selects as due care the minimum of first-best care, and a level of care that takes into account the wealth of the injurer. We show that such a rule in fact maximizes the precautionary effort by a potential injurer. The idea is counterintuitive: Being softer on an injurer, in terms of the required level of care, actually improves the incentives to take care when he is potentially insolvent. We extend the basic result to an entire population of potentially insolvent injurers, and find that the optimal general standards of care do depend on wealth, and distribution of income. We also show the conditions for the result that higher income levels in a given society call for higher levels of care for accidents.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 759
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title Optimal negligence rule under limited liability
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2014-06-03T07:14:11Z
dc.subject.keyword Business Economics and Industrial Organization
dc.subject.keyword accidents
dc.subject.keyword limited liability and negligence rule
dc.rights.accessRights info:eu-repo/semantics/openAccess

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