Baffi and Nardi, ‘Dangerous Activities: A Law and Economics Perspective’

Abstract
This work seeks to identify, in light of the main schools of thought within the field of Law and Economics, some useful criteria for optimal discipline of dangerous activities. From that perspective we examine potential solutions described by Shavell, Landes and Posner, by Dari-Mattiacci and Parisi. These solutions are likely to induce everyone within the society, using tort remedies, to implement efficient, decentralized choices, even when there might be a danger of accidents arising out of the exercise of a dangerous activity. Afterwards, we go on to discuss the issue of information that can and must be disseminated within that context by the potential tortfeasor. Thus, the issue of information asymmetry between the potential tortfeasor and the potential injured parties is discussed, given that – generally speaking – it is the latter who fail to appreciate the risk generated by the exercise of a dangerous activity. The analysis we have undertaken underscores that the potential tortfeasor, in order to reduce the size of the expected harm, may be led to demand excessive precautions, or an equally excessive reduction in activity level on the part of the potential injured parties. The remedy to that problem is a provision for an independent duty to provide disclosures regarding the precautions to be undertaken, and any limitations on activity. We then discuss how a fault based liability system appears to be desirable, provided that the injured parties sue in a court of law. However the injury incurred by a single injured party is not generally serious enough to justify filing suit. Punitive damages and class actions, on the other hand, may create incentives for filing suit, thereby discouraging the operator of a dangerous activity from requiring excessive precautions or excessive limitations on the potential injured parties’ activity levels. In so doing, the tort liability system can preclude the need for regulation.

Baffi, Enrico and Nardi, Dario, Dangerous Activities: A Law and Economics Perspective (December 17, 2017).

Leave a Reply