Incentives to Take Care Under Contributory and Comparative Fault

Abstract

Previous literature on contributory versus comparative negligence has shown that they reach equivalent equilibria. These results, however, depend upon a stylized application of the Hand Formula and an insufficiently coarse model of strategic incentives. Taking this into account, we identify a set of cases where care by one agent significantly increases the benefits of care by the other. When such cases obtain under bilateral harm, comparative negligence generates greater incentives for care, but this additional care occurs only when care is not socially optimal. By contrast, under unilateral harm or asymmetric costs of care, contributory negligence creates socially excessive care. Therefore, it is possible to socially rank negligence regimes depending upon the symmetry of potential harm and costs of care. We discuss a potential reform, the Retrospective Negligence Test, that when applied in the case of bilateral harm would make comparative negligence optimal.

Keywords: Fault Regimes, Negligence, Optimal Care, Contributory Negligence, Comparative Negligence, Hand Formula

JEL Classification: K13, K4