Liability rules can rationalize greater victim vulnerability

ABSTRACT

This paper shows that an imperfect strict liability rule can induce victims to increase the losses they incur in the event of an accident, and that similar incentives exist under the negligence rule. Using a simple model in which victims can influence their harm distribution, we identify two potential reasons why victims may benefit from greater ‘vulnerability’, namely strategic effects on own future and others’ behaviour.

KEYWORDS:

• Liability
• Care
• Activity

JEL CLASSIFICATION:

• K13
• D62

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ See Baumann and Friehe (2009) for a rare exception.

² The assumption that the victim does not file the case in the low-harm state of the world is not necessary for establishing the possibility of ‘perverse’ incentives, but it is necessary in our simple framework for having ‘victim’s own future behaviour’ as a channel via which victim vulnerability influences outcomes.

³ Note that $x^{+}(0)=x_{FB}$, such that $x^{+}(\eta )$ represents the socially optimal care for any $\eta$.