Strict Liability Versus Negligence

Abstract

The purpose of this chapter is to compare negligence rules and strict liability rules and to examine the allocative effects resulting from the application of different liability regimes. It first discusses unilateral accidents, while the more complicated bilateral cases follow afterwards. Each section starts with a discussion of the rule of no liability before moving on to various forms of negligence and ending with various strict liability rules. At the end of each section, there is a discussion on how results change when relaxing specific assumptions. The various aspects are summarised focusing on the question of whether the outcome under a specific liability regime is efficient or not. We also discuss several more specific topics of interest, for example, the information generating consequence of negligence, the allocative effects of various liability rules when agents enter into a contractual relationship, product liability, cases of ‘joint liability’, the impact of uncertain legal standards, and the interaction between liability law and insurance.

Keywords: Negligence, Strict Liability

JEL Classification: K0