Negligence, Strict Liability and Collective Action
22 Pages Posted: 14 Oct 2012
Date Written: May 3, 2012
An injurer's activity often exposes multiple victims to the risk of harm. We show that under negligence, the tort system's dominant regime, such victims face a collective-action problem in choosing their activity levels. An increase in one victim's activity level confers a positive externality on the other victims because it requires the injurer to take more care. Victims will accordingly choose lower activity levels than those they would choose if they acted collectively. Interestingly, depending on the efficiency of the injurer's precautions, victims' failure to coordinate can either increase or decrease social welfare. We discuss the implications of our analysis for nuisance disputes, the desirability of reimbursement rules, and the efficiency of insurance.
Keywords: negligence, collective action, multiple victims, multiple injurers, economies of scale, continuous precaution, fixed-cost precaution, insurance, nuisance
JEL Classification: K13, D62, D7
Suggested Citation: Suggested Citation