27 Pages Posted: 3 Feb 2005 Last revised: 7 Apr 2011
In this paper, we analyze two ways in which liability can be reduced: caps (the judgment proof problem) versus proportional reductions (the disappearing defendant problem). We show that these two problems have different incentive effects and hence yield dissimilar levels of social welfare. Moreover, when they occur simultaneously, they may have offsetting effects. We also show that the negligence rule with cause-in-fact may yield lower (rather than greater) levels of social welfare than strict liability. Finally, we analyze the optimal setting of the negligence standard. Our model encompasses different precaution technologies as well as monetary vs. non-monetary precautions.
Keywords: insolvency, judgment proof, strict liability, negligence, disappearing defendant
JEL Classification: K13, K32
Suggested Citation: Suggested Citation
Dari‐Mattiacci, Giuseppe and Mangan, Barbara, Disappearing Defendants Versus Judgment-Proof Injurers. Economica, Vol. 75, No. 300, pp. 749-765, November 2008; George Mason Law & Economics Research Paper No. 05-01. Available at SSRN: https://ssrn.com/abstract=660743 or http://dx.doi.org/10.2139/ssrn.660743