In-Kind Transfers and the Law of Torts

Abstract

The state and charitable institutions provide in-kind services for distributive purposes. Such services generally benefit recipients but in particular instances may also cause them harm. We discuss the optimal tort regime that should apply when such harm occurs. We show that the optimal level of care applicable to such services is lower than if the same services are provided by ordinary injurers in the general market. We further demonstrate that the social optimum can be induced by a lenient gross-negligence standard, whereas the standard regimes of ordinary negligence and strict liability both lead to inefficient outcomes. These conclusions are robust to variations in the distribution of recipients’ valuations of the service and to possible agency problems in the state or charity.