Working Paper: NBER ID: w1218
Authors: Steven Shavell
Abstract: Liability in tort and the regulation of safety are considered as means of controlling accident risks using the instrumentalist, economic method of analysis.Four general determinants of the relative social desirability of liability and regulation are first identified--differences in knowledge about risky activities as between a social authority and private parties; the possibility that parties would not be able to pay fully for harm done; the chance that they would not face suit for harm done; and administrative costs. On the basis of analysis of these determinants, it is suggested that the choices observed to be made between liability and regulation are, when broadly viewed, socially rational: Notably, activities that create the risk of the typical tort and that are little regulated characteristically display features leading us to say that they ought to be controlled mainly by liability. And activities that are much regulated -- especially ones involving significant hazards to health or to the environment -- ought to be directly constrained in important ways, taking into account their usual features.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| superior information about risky activities (D82) | liability is socially desirable (K13) |
| inability of private parties to pay for harm (K13) | reduces deterrent effect of liability (K13) |
| likelihood of a lawsuit not being brought (K41) | diminishes effectiveness of liability (K13) |
| administrative costs incurred under liability (K13) | cost advantage over regulation (L51) |
| superior information about risky activities (D82) | encourages informed decisions about risk reduction (G52) |
| determinants favoring liability (K13) | outweigh those favoring regulation (G18) |