Liability for Unknown Risks: A Law and Economics Perspective

Journal of European Tort Law, Vol. 7(2), p. 198-228, 2016

21 Pages Posted: 20 Sep 2017

See all articles by Michael G. Faure

Michael G. Faure

University of Maastricht - Faculty of Law, Metro; Erasmus University Rotterdam (EUR) - Erasmus School of Law

Louis T. Visscher

Erasmus University Rotterdam (EUR) - Rotterdam Institute of Law and Economics; Erasmus University Rotterdam (EUR) - Erasmus School of Law

Franziska Weber

University of Hamburg - Institute of Law and Economics

Date Written: April 1, 2016

Abstract

In the law and economics literature liability is generally regarded as an instrument which provides potential tortfeasors with incentives for optimal care taking. The question, however, arises whether liability can still provide those incentives when risks are unknown. That is the central question that is addressed in this contribution. One may, furthermore, have to differentiate between risks that are unknown to the tortfeasor and those are that not known according to the state of the art. After setting out the economic functions of liability rules and regulation the effects of missing information for care levels and activity levels is sketched and attention is paid to the way in which strict liability and negligence affect the incentives to do research concerning unknown risks. We conclude that an exposure to liability may on the one hand provide potential tortfeasors with incentives to do further research and hence to innovate; on the other hand, liability for unknown risks could also limit activity levels of socially desirable activities. We therefore conclude that it remains inherently difficult to use tort law as an instrument to provide incentives to generate information concerning unknown risks. We argue that in the tradeoff between tort liability and safety regulation there are strong arguments in favour of safety regulation, on the condition that it is used in a smart mix with liability rules. Finally, we equally investigate problems that arise in case of insurance of liability for unknown risks.

Keywords: Tort Law, Unknown Risks, Liability, Law and Economics

JEL Classification: K13

Suggested Citation

Faure, Michael G. and Visscher, Louis T. and Weber, Franziska, Liability for Unknown Risks: A Law and Economics Perspective (April 1, 2016). Journal of European Tort Law, Vol. 7(2), p. 198-228, 2016. Available at SSRN: https://ssrn.com/abstract=3036470 or http://dx.doi.org/10.2139/ssrn.3036470

Michael G. Faure

University of Maastricht - Faculty of Law, Metro ( email )

PO Box 616
Maastricht, 6200 MD
Netherlands
+31 - 43 - 388 30 60 (Phone)
+31 - 43 - 325 90 91 (Fax)

HOME PAGE: http://www.michaelfaure.be

Erasmus University Rotterdam (EUR) - Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

Louis T. Visscher

Erasmus University Rotterdam (EUR) - Rotterdam Institute of Law and Economics ( email )

Burgemeester Oudlaan 50
PO box 1738
Rotterdam, 3000 DR
Netherlands

Erasmus University Rotterdam (EUR) - Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands
+31 (10) 408 1833 (Phone)
+31 (10) 408 9191 (Fax)

HOME PAGE: http://frg.sin-online.nl/staff/index.html?lia=227

Franziska Weber (Contact Author)

University of Hamburg - Institute of Law and Economics ( email )

Hamburg, 20148
Germany

HOME PAGE: http://https://www.jura.uni-hamburg.de/ueber-die-fakultaet/personenverzeichnis/weber-franziska.html

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