This article offers an analysis of negligence law in an environment with asymmetric information and costly signaling. We consider three possible variations of the negligence doctrine, based on its two elements – the standard of care and damages. We find that accounting for signaling costs affects the social desirability of the negligence rule. In a nontrivial number of cases, the social costs are lowest under the variation of the negligence regime in which the standard of care is the same for all types of victims but damages vary according to the victim’s type. This analysis provides an efficiency-based justification for the use of negligence doctrine in bodily injuries and wrongful death cases, a practice that has been considered one of the greatest ‘misalignment puzzles’ in negligence law.
Alon Cohen and Avraham Tabbach, Informational Negligence Law, American Law and Economics Review, Volume 21, Issue 1, Spring 2019, Pages 110-149, https://doi.org/10.1093/aler/ahz002.