Precaution Incentives in Accident Settings
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Tim Friehe
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Precaution Incentives in Accident Settings
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Gabler Verlag
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9783834981271
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1
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CHF 47.50
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Volkswirtschaft
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English
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189
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Tim Friehe analyzes important aspects for the design of tort law which intends to induce optimal individual choices and possible limitations of workable tort law in varied settings. He highlights the consequences of the consideration of hitherto neglected behavioral dimensions for the conclusions of the economic analysis of tort law.
Dr. Tim Friehe ist wissenschaftlicher Mitarbeiter von Prof. Dr. Laszlo Goerke in der Abteilung für Volkswirtschaftslehre, insbesondere Finanzwissenschaft der Universität Tübingen.
Chapter 5 Screening Accident Victims
(S. 83-84)
1 Introduction
1.1 Motivation and Main Results
Administrative costs of the tort system are a considerable burden on society. Shavell (2004: 281) concludes for the United States that, on average, every dollar received by a victim creates a dollar or more in administrative costs. The literature on administrative costs has hitherto been concerned with, e.g., the divergence of the private and social motive to bring suit or the relative desirability of cost-shifting rules (see Spier forthcoming).
We turn to administrative costs that arise due to the assessment of damages and their e.ciency justi.cation. For instance, Shavell (2004: 237) asserts that compensation of the actual level of harm is the starting principle in most legal systems. Consequently, courts and/or litigants usually put forth considerable resources to establish the magnitude of actual damages.1 This paper is concerned with heterogeneous harm levels, bilateral care, and administrative costs associated with the veri.cation of harm levels in court.2 It is often the case that victims have a pretty good picture of the harm su.ered after an accident has occurred, whereas courts and injurers are notably less well informed. It might then be expected that victims use this information asymmetry to their advantage by misrepresenting the harm magnitude.
For instance, Kaplow and Shavell (1996) state that the primary objective of the plainti. is usually to collect as much as possible in litigation. Hence, resources spent on the accurate veri.cation appear justi.ed to correct for this tendency. The framework we consider distinguishes victim types by their harm magnitude and assumes that the court cannot tell the victim type without spending on administrative costs. The importance of uncertainty over harm is, for instance, evidenced by the ability of judges to bifurcate trials into one on liability and one on damages (see, e.g., Cooter and Ulen 2004: 428).
Our informational structure brings to the fore the role played by administrative costs in determining the harm magnitude. Take the instance of damages for loss of earnings, which is an essential element of tort liability. In establishing the present value of lost future income, a court will typically undertake the following steps:"
(1) wages are forecasted based upon an assumed growth rate, (2) if the injured victim is still employable, wages from an alternative occupation should be subtracted, but if the victim is deceased, amounts attributable to foregone personal consumption should be subtracted, (3) income taxes are subtracted, (4) each year s remaining amount is then multiplied by the probability that the victim would still have been working if the accident had not occurred, (5) and .nally, the residual is discounted to present value at a risk-free rate of interest" (Krauss and Levy 1996: 328).
It is obvious that small changes in the assumptions on respective aspects have a tremendous impact on the resulting damages aggregate and may be highly disputed. Furthermore, note that several of these aspects are highly type-speci.c. For instance, future wages are dependent on the skills the plainti. possesses as well as his ability to create new capabilities. Likewise, the probability that the plainti. would still be working is some function of - inter alia - the past employment experience.
Foreword
6
Acknowledgments
9
Table of Contents
10
Chapter 1 Introduction
14
1.1 General Introduction
14
1.2 Contribution
15
References
18
Chapter 2 The Economics of Tort Law: Basics and Selected Core Themes
20
1 Introduction
20
2 Basic Economics of Tort Law
22
3 Extensions to the Basic Model
28
3.1 Heterogeneity
30
3.2 Uncertainty
40
3.3 Administrative Costs
46
3.4 Risk Aversion
51
3.5 Judgment-Proofness
56
3.6 Bilateral Harm
62
References
65
Chapter 3 On the Incentive E.ects of Damage Averaging in Tort Law
77
1 Introduction
78
2 The Model and Analysis
79
2.1 The Model
79
2.2 Analysis
79
2.3 Discussion
83
3 Conclusion
86
References
87
Chapter 4 On the Superiority of Damage Averaging in the Case of Strict Liability
88
1 Introduction
89
2 The Model
90
3 The Analysis
92
4 Conclusion
94
References
95
Chapter 5 Screening Accident Victims
96
1 Introduction
97
1.1 Motivation and Main Results
97
1.2 Relation to the Literature
100
2 The Model, Benchmark, and Common Court Practice
101
2.1 The Model
101
2.2 The Benchmark
103
2.3 The Common Court Practice
104
3 Screening of Victims
106
4 Screening Victims with Variable Activity
115
5 Conclusion
118
Appendices
119
References
127
Chapter 6 A Note on Judgment Proofness and Risk Aversion
130
1 Introduction
131
1.1 Motivation and Main Results
131
1.2 Relation to the Literature
132
2 Model and Analysis
133
2.1 Non-Monetary Care
134
2.2 Monetary Care
137
3 Conclusion
141
4 References
142
Chapter 7 On the Similarity of Bilateral Harm and Unilateral Harm with Role-Type Uncertainty
144
1 Introduction
145
2 The Model
147
3 Bilateral Harm and Unilateral Harm with Role- Type Uncertainty Compared
150
4 The Special Case of Dharmapala and Ho.man
153
5 Role-Type Uncertainty Can Enable E.ciency
154
5.1 Equilibrium in E.cient Care
155
5.2 No Care Equilibrium at Ine.cient Care Levels
157
5.3 Discussion
162
5.4 An Example
163
5.5 Role-Type Uncertainty and other Liability Rules
165
6 Conclusion
167
Appendices
169
Appendix A
169
Appendix B
173
References
176
Chapter 8 On Avoidance Activities After Accidents
178
1 Introduction
179
2 The Model
181
3 The Analysis
182
3.1 Strict Liability versus Negligence
182
3.2 Uncertain Due Care Standard
184
3.3 Second-Best Considerations on Negligence
187
3.4 Avoidance and Punitive Damages
190
4 Conclusion
194
References
195
Chapter 9 Conclusion
197
