Patrick W. Schmitz
International Review of Law and Economics, Vol. 20 (3), 2000, 371-382.
Abstract. This article examines the efficiency of two different means of controlling hazardous economic activities, namely ex post liability for harm done and ex ante safety regulation. While some economists have viewed these two instruments as substitutes, others have stressed that their complementary use can be socially advantageous. Here it is argued that the models which have been built in order to support the latter view depend on the assumption that courts determine the magnitude of liability in a suboptimal way. It is demonstrated that no such assumption is needed if wealth varies among individuals.
The working paper version is available for download at SSRN.
The paper is available for download.