- Social wealth and optimal care
- International Review of Law and Economics
- Volume | Issue number
- 32 | 2
- 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)
When accidents result in noncompensable losses, a monetary payment is not enough to compensate the victim. We study the characteristics of optimal levels of care and distribution of risk under these circumstances and show that care depends on the aggregate wealth of society but does not depend on wealth distribution. We then examine whether ordinary liability rules, regulation, insurance, taxes and subsidies can be used to implement the first-best outcome (in terms of both care and risk). Finally, our results are discussed in the light of fairness considerations (second best) and in the special case of accidents between individuals and a firm.
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