- Least cost avoidance: the tragedy of common safety
- Journal of Law, Economics, & Organization
- Volume | Issue number
- 25 | 1
- Pages (from-to)
- Document type
- Interfacultary Research Institutes
Faculty of Law (FdR)
Faculty of Economics and Business (FEB)
- Amsterdam Center for Law & Economics (ACLE)
Amsterdam Business School Research Institute (ABS-RI)
This article 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 leastcost
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.
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