Settlement and the Strict Liability-Negligence Comparison

29 Pages Posted: 7 Sep 2011

See all articles by Abraham L. Wickelgren

Abraham L. Wickelgren

University of Texas at Austin - School of Law; University of Texas at Austin - Center for Law, Business, and Economics

Date Written: September 7, 2011

Abstract

Because injurers typically have better information about their level of care than do victims, the negligence rule increases the degree of asymmetric information between the parties, impeding settlement. Furthermore, the defendant’s private information about its level of care creates a mixed-strategy equilibrium under the negligence rule in both a screening and a signaling model of settlement. This paper shows that, as a result, expected accident costs are strictly greater under negligence than strict liability unless the injurer is sufficiently judgement-proof. That is, expected accident costs are lower under strict liability if the defendant is only somewhat judgement proof, while negligence has lower expected accident costs if the defendant is very judgement proof.

Suggested Citation

Wickelgren, Abraham L., Settlement and the Strict Liability-Negligence Comparison (September 7, 2011). U of Texas Law, Law and Econ Research Paper No. 213. Available at SSRN: https://ssrn.com/abstract=1923738 or http://dx.doi.org/10.2139/ssrn.1923738

Abraham L. Wickelgren (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

University of Texas at Austin - Center for Law, Business, and Economics

Austin, TX 78712
United States

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