Legal Liability When Individuals Have Moral Concerns
CIRPEE Working Paper 09-51
42 Pages Posted: 4 Dec 2009 Last revised: 21 Oct 2010
Date Written: December 1, 2009
We incorporate normative motivations into the economic model of accidents and tort rules. The social norm is that one should avoid harming others and should compensate if nevertheless harm is caused. To some extent, this is internalized through intrinsic moral concerns; moreover, those thought not to adhere to the norm are met with social disapproval. Moral and reputational concerns are not strong enough, however, for injurers to willingly compensate their victims. Absent legal liability, normative concerns induce precautions to prevent harm but precautions are then socially inefficient. By contrast, perfectly enforced legal liability crowds out informal incentives completely (e.g., individuals causing harm suffer no stigma) but precautions are then socially efficient. Under imperfectly enforced legal liability, formal legal sanctions and normative concerns are complements and interact to induce more precautions than under no-liability.
Keywords: Intrinsic motivations, social norms, esteem, strict liability, negligence, crowding out
JEL Classification: D8, K4, Z13
Suggested Citation: Suggested Citation