# The judgement proof problem

In some instances involving compensating victims for accidental harm, injurers are wealth constrained - the injurer's total assets are less than the damage that they might actually cause. This is also known as the 'judgement proof problem'. Suppose that the injurer has assets of *a >* 0, but that *a < h,* where *h* is the damage caused to victims. Let's consider the unilateral care model of accidents studied in class, and consider the following legal rules:

- • No liability
- • Strict liability
- • Negligence rule

Which of these legal rules can induce injurers to take an efficient amount of care when they are wealth constrained?

## No liability.

Under a no liability rule, the injurer's expected costs are:

for any level of assets. Thus, the injurer always chooses *x _{t} =* 0, and so this rule cannot be efficient.

## Strict liability.

Under a rule of strict liability, the injurer's expected costs are:

Because the injurer does not face the full social costs of his actions (he only has to pay *a < h* when the damage is *h),* he chooses *x _{t} < x*.* So a rule of strict liability is also inefficient here.

## Negligence rule.

Assuming the due standard is set at Zj = x*, the injurer's expected costs are:

Suppose that *x?* minimizes *w _{{}x_{{} + p(x_{{} )a.* Since

*a < h,*we know that x°<

*x**But it could be possible that:

which could hold if *a* is sufficiently low. For example, in the extreme case that the injurer has no assets, he will take no care. More generally, suppose, for example, that *a = a _{2}* in Figure 4.2.5. Then

*x*= x°° (rather than

_{i}*x*= x*) would be chosen by the injurer, since:

_{i}*Figure 4.2.5* A judgement proof injurer