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Journal of Law, Economics, and Organization Advance Access published online on September 5, 2009
Journal of Law, Economics, and Organization, doi:10.1093/jleo/ewp027
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© The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Screening in Courts: On the Joint Use of Negligence and Causation Standards

Eberhard Feess*

Frankfurt School of Finance and Management

Gerd Muehlheusser**

University of Bielefeld

Ansgar Wohlschlegel***

University of Bonn

* Frankfurt School of Finance and Management, Sonnemannstrasse 9-11, 60314 Frankfurt, Germany. Email: e.feess{at}frankfurt-school.de.

** Email: gerd.muehlheusser{at}uni-bielefeld.de

*** Email: wohlschlegel{at}uni-bonn.de

In legal systems all over the world, injurers are held liable only when the probability of having caused an accident exceeds a critical threshold (causation standard) and when behaving negligently. In a complete information framework, the joint use of the two instruments is puzzling as both whether a potential injurer has taken due care and whether he meets a specific causation standard depend only on his care level. We explain this puzzle with private information about injurers’ avoidance costs, and we derive conditions under which the joint use of both instruments can induce self-selection of different cost types. With self-selection, low-cost firms take due care, whereas high-cost firms behave negligently, thereby aiming at escaping liability via the causation standard. Compared to the optimal single-instrument policy, we derive conditions under which such self-selection policies are strictly welfare-enhancing. (JEL K13)


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