Working Paper: NBER ID: w1220
Authors: Steven Shavell
Abstract: Liability and safety regulation are examined as means of controlling risks in a theoretical model of the occurrence of accidents. According to the model, regulation does not result in appropriate reduction of risk -- due to the regulator's lack of knowledge about risk -- nor does liability result in that outcome -- because the incentives it creates are diluted by the chance that parties would not be sued for harm done or would not be able to pay fully for it. Thus, either liability could turn out to be superior to regulation or the reverse could be true. But as is stressed, joint use of the two means of controlling risk is generally socially advantageous, and the characteristics of their optimal joint use are determined.
Keywords: No keywords provided
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 |
|---|---|
| Liability (K13) | levels of care (I11) |
| Probability of not being sued (K41) | levels of care (I11) |
| Insufficiency of assets (G33) | levels of care (I11) |
| Regulation (L51) | levels of care (I11) |
| Joint use of liability and regulation (K29) | levels of care (I11) |
| Optimal regulatory standard under joint use (L98) | Optimal regulatory standard under regulation alone (L51) |