23 Pages Posted: 8 Mar 2005
When tort liability and regulation are jointly applicable, judges have a tendency to be more demanding than regulators. Liability standards are generally more stringent than regulatory ones: violation of a regulatory standard is normally considered negligence per se while compliance with regulation does not automatically relieve the injurer of tort liability. While under an imperfectly working tort liability system - i.e. a tort law system whose prevention function is undermined by judgment proof or disappearing defendants - injurers take too little precaution, it will still often be the case that only major violations (and not minor violations) are rewarding. Mathematically, this will occur when the injurer's expected expenses function exhibits two local minima, one at the socially optimal level of care and the other below that level. Regulation set below the optimal level can make the latter unfeasible, thereby enabling liability to induce socially optimal outcomes.
Keywords: insolvency, judgment proof problem, disappearing defendant, bankruptcy, regulation
JEL Classification: K13, K32
Suggested Citation: Suggested Citation
De Geest, Gerrit and Dari‐Mattiacci, Giuseppe, Soft Regulators, Tough Judges. Supreme Court Economic Review, Vol. 15, 2007; George Mason Law & Economics Research Paper No. 05-06. Available at SSRN: https://ssrn.com/abstract=681470 or http://dx.doi.org/10.2139/ssrn.681470
By Peter Menell
By Keith Hylton