Efficient liability rules: Complete characterization.
A liability rule determine the proportions in which the two parties are to bear the loss in case of an accident. It is said to be effective if it induces the both parties to take the total social cost minimizing care levels. The main theorem offers a necessary and sufficient condition for efficiency of any liability rule, called a negligence liability. It requires that the entire loss be borne by the injurer if the viction is nonnegligent and the injurer is negligent, and vice versa, this is, the intire loss has to be borne by the viction if the injurer is nonnegligent while the viction is negligent. All standard results on efficiency of liability rules follows readily from this characterization because no assumptions on cost of care and expected loss functions are made exept that the minimum of total social costs exists. Summing up, it is a nice, mathematically rigorous paper.
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