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Journal of Law, Economics, and Organization Advance Access originally published online on October 29, 2007
Journal of Law, Economics, and Organization 2009 25(1):235-261; doi:10.1093/jleo/ewm052
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© The Author 2007. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Least-Cost Avoidance: The Tragedy of Common Safety

Giuseppe Dari-Mattiacci*

Amsterdam Center for Law and Economics and Tinbergen Institute

Nuno Garoupa**

University of Illinois College of Law and IMDEA

* Amsterdam Center for Law and Economics, Universiteit van Amsterdam, Amsterdam, The Netherlands. Email: gdarimat{at}uva.nl.

** University of Illinois College of Law, Champaign, USA. Email: ngaroupa{at}law.uiuc.edu.

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 least-cost 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. (JEL K13, K32)


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