By Tim Friehe, Prof. Dr. Laszlo Goerke
One vital functionality of tort legislation is the motivation of precaution incentives. this can be quite welcome in settings during which the internalization of interdependencies among participants in relation to care and anticipated damage might in a different way no longer take impression because of excessive transaction expenses greatly conceived, coincidence settings being a main instance. Tim Friehe analyzes very important facets for the layout of tort legislations which intends to urge optimum person offerings and attainable barriers of achievable tort legislations in diverse settings.
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Example text
The first-best outcome will often call for type specificity of care taken, for example, which is often difficult to implement due to personal characteristics being either private information or not precisely foreseeable ex ante. In this section, we will discuss contributions that analyze the relative performance of liability rules given heterogeneity of actors and studies which consider ways in which the rules are or need to be adapted to deal with heterogeneity in an optimal fashion. The dimensions along which we will allow for heterogeneity are costs of care, levels of wealth, harm estimates, and heterogeneity in the actual harm level.
In the model, the distribution of harm on its support is dependent upon the firm type. Courts can observe neither harm suffered in a specific case nor the firm type. Hence, if the court awards a cash remedy, it has to determine it only knowing the distribution of firms. This makes all firms, which are strictly liable, take the same care level. The alternative to a pure-cash remedy is the coupon-cash remedy, under which either a specified amount of cash or a number of coupons can be opted for by the plaintiff.
The injurer needs to compensate the difference in expected harm which is due to her deviation from due care. In that case, the marginal effects of the individual problem are equal to those of the social problem. The reason is that the reduction in the expected liability payments, which amounts to expected harm at due care, is a fixed component of the injurer’s objective function. Hence, injurer costs are minimized at efficient care. The application to the case of varying costs of care is an intuitive transfer, where the standard set is that of the individual with the lowest costs of care, implying its excessiveness for all other types.