Citation

Dari-Mattiacci G, De Geest G. Int. Rev. Law Econ. 2006; 26(3): 336-354.

Copyright

(Copyright © 2006, Elsevier Publishing)

DOI

10.1016/j.irle.2006.11.005

PMID

unavailable

Abstract

Insolvency is usually blamed for inducing injurers to take too little precaution. However, it has also been shown that insolvency may induce potentially insolvent injurers to spend more on precaution than is socially desirable. There may be two reasons to take excessive precaution. On the one hand, insolvent injurers may find it cheaper to take precaution than solvent ones; in fact, today's expenses on precaution may reduce the assets available for tomorrow's liability. On the other hand, it may be optimal for insolvent injurers to substitute precautions that reduce the probability of accidents (and, hence, of liability) for precautions that reduce the magnitude of the harm (which they partially externalize on victims). Under what conditions will they do so? Among other results, we show that over-precaution may only occur with probability precautions and not with magnitude precautions.