Least Cost Avoidance: The Tragedy of Common Safety

42 Pages Posted: 29 Jun 2004 Last revised: 7 Apr 2011

Giuseppe Dari‐Mattiacci

Amsterdam Law School; Amsterdam Business School; Tinbergen Institute

Nuno M. Garoupa

Texas A&M University School of Law; Catholic University of Portugal (UCP) - Católica Global School of Law

Abstract

This paper shows that the least cost avoider approach in tort is not necessarily the optimal way to attain least cost avoidance when accidents can be avoided by either of two parties. When parties do not observe each other's costs of care at the time of the accident and are unable to determine which party is the least cost avoider, they fail to anticipate the outcome of the adjudication. Under these circumstances, accident avoidance becomes a commons problem because care by each individual party reduces the prospect of liability for both parties. As a result parties suboptimally invest in care. We show that regulation removes this problem and is superior to tort liability both when parties act simultaneously and when they act sequentially. We further examine how different liability rules perform in this respect.

Keywords: tort, fine, precaution cost liability, last clear chance, least cost avoider

JEL Classification: K13, K32

Suggested Citation

Dari‐Mattiacci, Giuseppe and Garoupa, Nuno M., Least Cost Avoidance: The Tragedy of Common Safety. Journal of Law, Economics, and Organization, Forthcoming; George Mason Law & Economics Research Paper No. 04-27. Available at SSRN: https://ssrn.com/abstract=560062 or http://dx.doi.org/10.2139/ssrn.560062

Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Nuno M. Garoupa

Texas A&M University School of Law ( email )

1515 Commerce St.
Fort Worth, TX 76102
United States

Catholic University of Portugal (UCP) - Católica Global School of Law ( email )

Lisboa
Portugal

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