The Joint Use of Regulation and Strict Liability with Multidimensional Care and Uncertain Conviction

Abstract

The purpose of this paper is to explore the joint use of regulation and strict liability when firms can take care in both observable and unobservable dimensions and when the firm's conviction for damages is uncertain. Much of the literature concerning joint use regards management of the judgment-proof problem; the take-home result of our paper is that if the harming party can take both observable and unobservable care, then joint use can improve welfare even in the absence of judgment-proofness. This is true even when penalty multipliers are allowed, provided social welfare is negatively related to the firm's expected liability costs. In fact, use of penalty multipliers further strengthens the case for joint use.

Keywords: Strict Liability, Regulation, Joint Use, Penalty Multipliers, Judgment Proof Problem

JEL Classification: K13, K32