Working Paper BETA #2014-06

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Title : Loss-sharing between Nonnegligent Parties.

Author(s) : Giuseppe Dari-Mattiacci, Bruno Lovat, Francesco Parisi

Abstract : Shavell (1980) established that all existing tort regimes fail to incentivize optimal activity levels. The bearer of residual loss adopts a socially optimal activity level, however the non-bearer of residual loss will adopt an excessive level of activity. In this paper, we explore alternative liability rules, which distribute the cost of accidents between non-negligent parties, effectively rendering both parties (injurer and victim) partial residual bearers of loss. We introduce a bilateral accident model with care and activity levels, assuming risk neutrality. We determine conditions where loss-sharing for nonnegligent torts may be a desirable alternative for policymakers, and analyze the social cost of accidents under such shared-liability regimes. We also extend our analysis to account for role-uncertainty of the parties, as well as real-world implications for tort law.

Key-words : tort, loss-sharing, negligence, strict liability, comparative fault, role-uncertainty.

JEL Classification : K13, K32.