Langlais, Eric (2010): Safety and the Allocation of Costs in Large Accidents.
Download (272kB) | Preview
We study the characteristics of optimal levels of care and distribution of risk in a extended unilateral accident model, where 1/ parties are Rank Dependant Expected Utility maximizers, which allows us to capture two important behavioral characteristics in risk, both pessimism (probability transformation) and risk aversion; 2/ there exists an aggregate/uninsurable risk in case of accident ; 3/ tortfeasors have the opportunity to invest in damages reduction activities having a monetary cost of effort. Important results show that the optimal care is larger than under the risk neutral/small risks case, it depends on the aggregate wealth of society but does not depend on wealth distribution. We then examine whether ordinary liability rules, with or without insurance, can be used to implement the first-best outcome.
|Item Type:||MPRA Paper|
|Original Title:||Safety and the Allocation of Costs in Large Accidents|
|Subjects:||K - Law and Economics > K1 - Basic Areas of Law > K13 - Tort Law and Product Liability ; Forensic Economics
D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact
|Depositing User:||Eric Langlais|
|Date Deposited:||09. Oct 2010 19:13|
|Last Modified:||08. Mar 2015 15:12|
Abdellaoui M. (2000), Parameter-free elicitation of utility and probability weighting functions, Management Sciences, 46, 1497-1512.
Abdellaoui M. and Munier B. (1997), Experimental Determination of Preferences under Risk : the Case of very Low Probability Radiation, Ciencia y Technelogia dos Materiais, 19, Lisboa, Portugal.
Arlen J. (1992a), Liability for physical injury when injurers as well as victims suffer losses, Journal of Law, Economics & Organization, 8, 411-426.
Arlen J. (1992b), Should defendants' wealth matter?, Journal of Legal Studies, 21, 413-429.
Arrow K. (1964), Optimal insurance and generalized deductibles, Scandinavian Actuarial Journal, 1, 1-42.
Baron D. (1971), Demand uncertainty and imperfect competition, International Economic Review, 12, 196--208.
Bigus J. (2006), Tort liability and probability weighting function according to Prospect Theory, communication to the American Law & Economics Association Annual Meeting in 2006.
Borch J. (1962), Equilibrium in a reinsurance market, Econometrica, 30, 424-444.
Bouyssou D. and Vansnick J-C. (1990), Utilité Cardinale dans le certain et choix dans le risque, Revue Economique, 6, 979-1000.
Brown J. P. (1973), Toward an economic theory of liability, Journal of Legal Studies, 2, 323-349.
Calabresi G. (1970), The Cost of Accidents - A Legal and Economic Analysis, Yale University Press.
Carlier G., Dana R-A. and Sahidi N. (2003), Efficient insurance contracts under Epsilon-Contaminated Utilities, The Geneva Papers on Risk an Insurance Theory, 28, 59-71.
Chateauneuf A. and Cohen M. (1994), Risk-seeking with diminishing marginal utility in a non expected utility model, Journal of Risk and Uncertainty, 9, 77-91.
Chateauneuf A., R.-A. Dana and J.M. Tallon (2000), Optimal risk sharing rules and equilibria with Choquet-expected-utility, Journal of Mathematical Economics, 34, 191-214.
Chateauneuf A., Eichberger J. and Grant S. (2003), Choice under uncertainty with the best and worst in mind: neo-additive capacities, Cahier de la MSE 2003-01, CERMSEM-Université Paris 1-Panthéon-Sorbonne.
Chew S., E. Karni and Z. Safra (1987), Risk aversion in the theory of Expected Utility with Rank Dependent Preferences, Journal of Economic Theory, 42, 370-381.
Chew S. and Zilcha I. (1990), Invariance of the efficient sets when the Expected Utility hypothesis is relaxed, Journal of Economic Behavior and Organization, 13, 125-131.
Chiu W. (2000), On the propensity to self protect, The Journal of Risk and Insurance, 67, 555-578.
Cohen M. (1995), Risk aversion concepts in expected -- and non-expected -- utility models, The Geneva Papers on Risk and Insurance Theory, 20, 73-91.
Cooter R. (1986), Liability rules and risk sharing in environmental and resources policy: discussion, American Journal of Agricultural Economics, 68, 1276-1278.
Courtault J-M. and Gayant J-P. (1998), Local risk aversion in the rank dependent expected utility model: First order versus second order effects, Economics Letters, 59, 207-212.
Dari-Mattiacci G. (2005), Errors and the functioning of tort liability, Supreme Court Review, 13, 165-187.
Dari Mattiacci G. & Franzoni L. (2010), Innovation under liability law, Mimeo.
Dari-Mattiacci G. and Langlais E. (2009), Social wealth and optimal care, Amsterdam Center for Law & Economics Working Paper No. 2008-05, Tinbergen Institute.
Deffains B. and Langlais E. (Eds) (2009), Analyse Economique du Droit -- Principes, Méthodes, Résultats, De Bœck Université.
de Geest G. and Dari-Mattiacci G. (2005), Soft regulators, tough judges, Supreme Court Review, 15, 119-140.
Diamond P. (1974a), Single accident activity, 3, Journal of Legal Studies, 3, 107-164.
Diamond P. (1974b), Accident law and resource allocation, The Bell Journal of Economics and Management Science, 5, 366-405.
Drèze J. (1987), Essays on economic decisions under uncertainty, Cambridge University Press.
Dupuis A. and Langlais E. (1997), The basic analytics of insurance demand and the Rank-Dependent Expected Utility model, Finance -- Revue de l'AFFI, 48, 47-76.
Eide E. (2005), Accident liability with Rank Dependent Expected Utility, Working Paper, Université d'Oslo.
Endres A. & Bertram R. (2006), The development of care technology under liability law, International Review of Law and Economics, 26, 503-518.
Endres A. & Friehe T. (2010), Too much R&D although polluters underestimate environmental harm ?, Mimeo.
Etner J., Jeleva M. and Jouvet P-A. (2007), Risk perception, voluntary contributions and environmental quality, Research in Economics, 61, 130-139.
Fees E., Muehlheusser G. & Wohschlegel A. (2009), Environmental liability under uncertain causation, European Journal of Law and Economics, 28, 133-148.
Graff Zivin J. and Small A. (2003), Risk sharing in Coasian contracts, Journal of Environmental Economics and Management, 45, 394-415.
Graff Zivin J., R. Just and D. Zilberman (2006), Risk aversion, liability rules and safety, International Review of Law and Economics, 25, 604-623.
Green J. (1976), On the optimal structure of liability laws, The Bell Journal of Economics and Management Science, 7, 553-574.
Greenwood, P. and Ingene P. (1978), Uncertainty externalities, liability rules and resources allocation, American Economic Review, 68, 300-310.
Hansen R. and Thomas R. (1999), The efficiency of sharing liability for hazardous waste: effects of uncertainty over damages, International Review of Law and Economics, 19, 135-157.
Hogarth R. M. and Kunreuther H (1985), Ambiguity and insurance decisions, American Economic Review (AEA Papers and Proceedings), 75, 386-390.
Hogarth R. M. and Kunreuther H (1989), Risk, ambiguity, and insurance, Journal of Risk and Uncertainty, 2, 5-35.
Jacob J. (2010), Technical choice, liability and information acquisition in the presence of ambiguity about the risk of accident, Mimeo.
Jeleva M. and Rossignol S. (2009), Political decision of risk reduction: the role of trust, Public Choice.
Jullien B., B. Salanié and F. Salanié (1999), Should more risk-averse agents exert more effort?, The Geneva Papers on Risk and Insurance, 24, 19-28.
Kaplow L. and S. Shavell (1994), Why the legal system is less efficient than the income tax in redistributing income?, Journal of Legal Studies, 23, 667-681.
Kaplow L. and S. Shavell (2000), Should legal rules favor the poor? Clarifying the role of legal rules and the income tax in redistributing income, Journal of Legal Studies, 29, 821-835.
Khilstrom R. and Roth A. (1982), Risk aversion and the negotiation of insurance contracts, The Journal of Risk and Insurance, 49, 372-387.
Kunreuther H., Hogarth R. M., Meszaros J. (1993), Insurer ambiguity and market failure, Journal of Risk and Uncertainty, 7, 71-87.
Kunreuther H., Meszaros J., Hogarth R. M., Spranca, M. (1995), Ambiguity and underwriter decision processes, Journal of Economic Behavior and Organization, 26, 337-352.
Landes W. M. and R. A. Posner (1987), The economic structure of tort law, Cambridge, MA: Harvard University Press.
Landsberger M. and I. Meilijson (1994), Co-monotone allocations, Bickel-Lehmann dispersion and the Arrow-Pratt measure of risk-aversion, Annals of Operations Research, 52, 97-106.
Lee K. (1998), Risk-aversion and self-insurance-cum-protection, Journal of Risk and Uncertainty, 17, 139-150.
Lee K. (2005), Wealth effects on self-insurance and self-protection against pecuniary and non-pecuniary losses, The Geneva Risk and Insurance Review, 30, 147-159.
Leland H. (1972), Theory of the firm facing random demand, American Economic Review, 62, 278--291.
Lichtenstein S, Slovic P., Fischhoff B., Layman M. and Combs B. (1978), Judged Frequency of Lethal Events, Journal of Experimental Psychology: Human Learning and Memory, 4, 551-578.
Machina M. (1987), Choice under uncertainty: Problems solved and unsolved, Journal of Economic Perspectives, 1, 121-154.
Magill M. and Quinzii M. (1996), Theory of Incomplete Markets (vol. 1), MIT Press.
Mossin J. (1968), Aspect of rational insurance purchasing, Journal of Political Economy, 76, 553-568.
Miceli T. and K. Segerson (1995), Defining efficient care: the role of income distribution, Journal of Legal Studies, 24, 189-208.
Nell M. and A. Richter (2003), The design of liability rules for highly risky activities - Is strict liability superior when risk allocation matters?, International Review of Law and Econmics, 23, 31-47.
Nussim J. and Tabbach A. (2009), A revised model of unilateral accidents, International Review of Law and Econmics, 29, 169-177.
Pratt J. (1964), Risk aversion in the small and inthe large, Econometrica, 32, 122-136.
Posner R. (2003), Probability errors: some positive and normative implications for tort and contract law, Supreme Court Economic Review, 11, 125-141.
Raviv A. (1979), The design of optimal insurance policy, American Economic Review, 69, 84-96.
Roëll A. (1987), Risk aversion in Quiggin and Yaari's rank-order model of choice under uncertainty, The Economic Journal, 97, 143-159.
Salanié F. and Treich N. (2009), Regulation in Happyville, The Economic Journal, 119, 665-679.
Sandmo A. (1971), On the theory of the competitive firm under price uncertainty, American Economic Review, 61, 65-73.
Sarin R. and Wakker P. (2000), Cumulative dominance and probabilistic sophistication, Mathematical Social Sciences, 40, 191-196.
Segal U. and Spivak A. (1990), First order versus second order risk aversion, Journal of Economic Theory, 51, 111-125.
Segerson K. (1986), Risk sharing and the design of environmental policy, American Journal of Agricultural Economics, 68, 1261-1265.
Shavell S. (1981), A note on efficiency versus distributional equity in legal rulemaking: should distributional equity matter given optimal income taxes?, American Economic Review - Papers and Proceedings, 71, 414-418.
Shavell S. (1982), On liability and insurance, The Bell Journal of Economics, 13, 120-132.
Shavell S. (1986), The judgment proof problem, International Review of Law and Economics, 6, 45-58.
Shavell S. (1987), Economic Analysis of Accident Law, Cambridge, MA: Harvard University Press.
Stott H. (2006), Cumulative prospect theory's funnctional menagerie, Journal of Risk and Uncertainty, 32, 101-130.
Sweeney G. and T. Beard (1992), The comparative statics of self-protection, The Journal of Risk and Insurance, 59, 301-309.
Teitelbaum J. (2007), A unilateral accident model under ambiguity, Journal of Legal Studies, 36, p. 431-477.
Tversky A. and Wakker P. (1995), Risk attitudes and decision weights, Econometrica, 63, 1255-1280.
Viscusi K. (2001), Jurors, judges and the mistreatment of risk by the courts, Journal of Legal Studies, 30, 107-142.
Viscusi W., Vernon V. and Harrington J. (2000), Economics of Regulation and Antitrust, chapitre 19: «The emergence of health, safety and environmental regulation », MIT Press.
Wakker P. (1994), Separating marginal utility and probabilistic risk aversion, Theory and Decision, 36, 1-44.
Wakker P. and Tversky A. (1993), An axiomatization of Cumulative Prospect Theory, Journal of Risk and Uncertainty, 7, 147-175.
Watabe A. (1999), The effect of liability-sharing rules in delegating hazardous activities, International Review of Law and Econmics, 19, 349-368.
Yaari M. (1987), The Dual Theory of choice under risk, Econometrica, 55, 95-116.