Liability rules

In fhe case of chemical exposures thaf are privafe goods, govern-menf should provide information rather than regulation. And the negligence liability rule, rather than strict liability, should be applied. 

A Critique of Liability Rules No Liability Might Be Better... 

Despite the positive role liability rules theoretically can play in damage reductiorf some analysts prefer a no-liability system where producers and consumers make market choices about risk and victims are responsible for their own injuries. Under those circumstances, potential victims could purchase insurance rather than use liability rules to receive compensation. Proponents of no liability argue that the tort system consumes more resources per dollar of compensation than a simple insurance system (Huber 1988b). ... 

Some critics do not oppose liability rules in theory, but they argue that those rules, as implemented by real courts, firms, and consumers, do not yield an efficient level of risk. These criticisms can be grouped into five main categories. 

The strict-liability rule assigns fo firms fhe cosfs of residual risks that cannot be cost-effectively eliminated given current information. In turn, firms often have a strong incentive to find, act upon, and disseminate information that lowers their damage costs (or insurance rates), unless they can avoid their liability obligations as described earlier. 

Evaluating torts as a response to transaction costs in the case of chemicals involves two tasks comparing the characteristics of chemicals with each liability rule s requirements and weighing the trade-offs that apply to liability rules in general. 

Landes and Posner (1987, 291-307) argue that the use of fhe rules in modern producf liabilify law has in general been allowed fo vary to promote efficiency. Buf fo fhe extent that liability rules cannot be tailored to the characteristics of particular products, the choice between inefficiencies depends on one s values abouf which errors are most costly, and individuals will vary in their assessment of these trade-offs (Rofhbard 1982, 70). No scientifically correct answer governs these trade-offs. 

The best mix of liability rules, information markets, and regulations varies across commodities even if efficiency is the only criterion. Because all are suboptimal in practice, the proper mix also depends on people s inefficiency preferences. Asserting that one values individual liberty eliminates only command-and-control regulation from the set of possibilities. Under the right circumstances, no liability, the negligence rule, strict liability, and strict liability with contributory negligence all promote individual liberty. On balance, 1 favor no liability or the negligence rule because 1 believe the adverse side effects of sfrict liability are too severe. 

Winter (1991) argues that unstable interest rates, unanticipated changes in tort liability rules, asymmetric information, adverse selection, and capital market inefficiencies all caused difficulties for fhe liability insurance market during the 1980s. 

Some analysts believe the market for information about the health risks of chemical exposure will be not only inequitable but also inefficient. One efficiency concern is that individuals would be overburdened by the sheer number of remote health contingencies that they must consider, even though most exposures will not result in disease. Bureaucratic regulation and liability rules are institutional responses to these concerns. 

When both injurers and victims care and activity levels affect damages but the victims do not purchase products from the injurers, as in cases of damages to cyclists from automobiles, no liability rule is optimal (ShaveU 1987, 29). In contrast, if cyclists suffer damages as a result of defective bike manufacturing, strict UabUity induces bike prices to reflect aggregate damages. 

Calfee, John E., and Clifford Winston. 1988. Economic Aspects of Liability Rules and Liability Insurance. In Liability Perspectives and Policy. Edited by Robert E. litan and Clifford Winston. Washington Brookings Institution. 

This chapter focuses largely on the second hypothesis, examining how product liability rules in the United States may affect the drug projects in which manufacturers choose to invest. 

To what extent has government intervened in recent years to alter product liability rules or to affect the outcomes of liability claims This section reviews recent policy initiatives of potential relevance to pharmaceutical liability,... 

After having first concentrated on the establishment of administrative rules ie, environmental protection rules, the public interest has been focusing on civil law ie, liability schemes complementary to protection rules respectively. It is argued that (strict) liability rules are deemed not only to ensure compensation for the party who suffered the damage, but also ensure that the operators behave in most responsible manner in order to avoid possible liability. 

There is a growing opinion that civil liability rules should be addressed at international level. International rules are necessary, it is claimed, since pollution is no respecter of... 

Civil liability rules are usually not suitable in these cases since the basic elements of liability do not exist. This being the case, problems should be dealt by means of administrative law and not by civil law. Given the absence of individual litd>ility and the huge costs involved, the burden of clean-up should be shouldered by several parties or even society as a whole. 

In Germany, the Civil Code forms a basis for civil liability rules. However, a special environmental liability act [8] was enacted in 1990. The act entered into force on 1.1.1991. It applies to installations subject to approval pursuant to the Federal emission control law and it is based on a strict liability regime. If such an installation impairs the environment, the operator has to compensate for death, bodily injuries and damages to property or individual rights. 

Owing to its wide coverage of dangerous substances, the Convention applies to many industrial sectors. Also incinerators of waste and other similar installations are regarded as chemical industry. It should be noted that sites for permanent deposits of waste are explicitly subject to the system. However, specific transitional provisions and liability rules are to be ig)plied in case of a pomanent waste deposit. 

Fishback, P.V. (1987). "Liability Rules and Accident Prevention in the Workplace Empirical Evidence from the Early Twentieth Century," Journal of Legal Studies 16(2) 305-28. 

The examples are very simplified in that the parties can only choose between care and not taking care. In the real world there are gradations of care. Nevertheless, it will still be theoretically true that both liability rules will remove market failure (Shavell, 1987). 

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