Eberhard Feess, ‘Negligence standards and care levels when damages depend on sales prices’

Abstract:
In standard models on negligence rules, due care levels can be used for fine-tuning the care levels of potential injurers, and there are good arguments why care levels should vary among different fields. We extend the analysis of the impact of due care on care actually chosen to situations where damages depend on sales prices. This is the case for many contractual relationships, but also for damages on capital markets which are usually calculated as the difference between share prices paid and share prices after the adverse information becomes public. In a model with errors in court, we show that tighter negligence standards may even reduce care levels chosen by potential injurers under reasonable circumstances. Due to this counter-intuitive effect, negligence standards can hardly be applied for fine-tuning the care levels of potential injurers when damages depend on prices.

Eberhard Feess, Negligence standards and care levels when damages depend on sales prices. European Journal of Law and Economics, October 2013, Volume 36, Issue 2, pp 389-405.

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