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When Will Judgment Proof Injurers Take Too Much Precaution?

12 Pages Posted: 11 Dec 2003  

Giuseppe Dari‐Mattiacci

Amsterdam Law School; Amsterdam Business School; Tinbergen Institute

Gerrit De Geest

Washington University in St. Louis - School of Law

Date Written: December 2003

Abstract

This article identifies the conditions under which potentially insolvent injurers over-invest in precaution. We show that this may happen only with respect to precautionary measures that reduce the probability of the accident. No such result occurs if precaution only reduces the magnitude of the harm. Contrary to the literature, we find that overprecaution may also occur when precaution is non-monetary. The reason is that overprecaution can be due not only to the implicit precaution-subsidy effect (the fact that care-taking reduces the injurer's exposure to liability when precaution is monetary) but also to a substitution effect between precaution that reduces the probability of accidents and precaution that reduces the magnitude of the harm. Finally, we find that when the injurer's wealth is sufficiently low, precautions may actually be lower when they are monetary than when they are non-monetary, despite the implicit precaution subsidy in the former case.

Keywords: insolvency, judgment proof problem, liability, bankruptcy, overprecaution

JEL Classification: K13, K32

Suggested Citation

Dari‐Mattiacci, Giuseppe and De Geest, Gerrit, When Will Judgment Proof Injurers Take Too Much Precaution? (December 2003). International Review of Law and Economics, Vol. 26, No. 3, September 2006; George Mason Law & Economics Research Paper No. 03-56. Available at SSRN: https://ssrn.com/abstract=477042 or http://dx.doi.org/10.2139/ssrn.477042

Giuseppe Dari-Mattiacci

Amsterdam Law School ( email )

Amsterdam, 1018 WB
Netherlands

HOME PAGE: http://www.uva.nl/en/profile/d/a/g.darimattiacci/g.darimattiacci.html

Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Gerrit De Geest (Contact Author)

Washington University in St. Louis - School of Law ( email )

Campus Box 1120
St. Louis, MO 63130
United States
314-398-4941 (Phone)

HOME PAGE: http://www,degeest.wustl..edu

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