Strict liability

The analysis for a rule of strict liability - where the injurer is obligated to pay for all damages, irrespective of whether he took care or

The bilateral care model

Figure 5.3.1 The bilateral care model

not - is very similar. We consider the victim first. The victim's problem is now:

which gives us:

The victim takes no care under a rule of strict liability. Given this choice, what is the injurer's best choice of care? Remember, the goal of the injurer is to minimise his expected cost of care. Under a rule of strict liability (and given the result that we just derived for the victim with this rule) the injurer is faced with the full social costs, and so minimises those costs subject to the condition that xv = 0. In other words, the victim's problem is:

The solution, which we denote by x.L, must obey the first-order condition:

or:

The question is: how do these levels of care compare to the efficient levels? The argument is the same here as it was for the analysis of no liability. Recall that at the efficient level of care, we have x* > 0. Since we assumed that xi and xv were substitutes, and since xsvL = 0 < x*, this means that with a rule of strict liability the injurer must take more care than the efficient level. That is, xs{L > x*. In the bilateral care model, a rule of strict liability is inefficient: no care is taken by the victim, and too much care is taken by the injurer.

Again, the result is best seen in Figure 5.3.1. With a rule of strict liability, the victim takes a level of care that is equal to zero. For the injurer, the point x* no longer minimises his expected costs: he increases his level of care in response, above the efficient level.

 
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