A Positive Theory of Strict Liability
Review of Law & Economics, 2008
30 Pages Posted: 28 Sep 2006 Last revised: 26 Jan 2008
In spite of its tenure as the prevailing economic theory of strict liability, the proposition that strict liability should be preferred to negligence when it is desirable to reduce injurers' activity levels rather than victims' activity levels raises a few questions. First, when should we prefer to reduce injurers' activity levels rather than victims'? Second, why should we not hold both victim and injurer strictly liable? This paper provides a model that answers these questions more effectively than the prevailing economic model. The model presented here offers specific predictions that are consistent with the detailed law on strict liability and the appearance of strict liability in pockets rather than as an across-the-board default rule. The choice between strict liability and negligence depends on the degree to which there is a reciprocal exchange of risk among actors, and the extent to which benefits, in addition to risks, are externalized.
Keywords: strict liability, negligence, economic theory of strict liability, exchange of risk among actors, externalized benefits
JEL Classification: K00, K13, K41, K32, K00
Suggested Citation: Suggested Citation