ABSTRACT
In real-world tort situations, accident probability is often influenced by external factors that are beyond the injurers and victims’ control. Standard economic analyses of tort law typically treat these factors as exogenous to the model, focusing on the primary incentives of injurers and victims. In this paper, we show that when accident risks are influenced by external factors under third-party control, assigning residual liability to those third parties can have a multiplication effect on the incentives of the liability rule – third parties would have an incentive to invest in risk reduction, while injurers and victims would both have incentives to invest in optimal precautions. In the presence of a price mechanism, the liability faced by third parties would cascade down to injurers and victims, incentivizing both types of actors to reduce activity levels in high-risk settings. We refer to this rule as ‘third-party residual liability’ (TPRL).
Parisi, Francesco and Luppi, Barbara, The Multiplication Effect of Third-Party Liability (January 21, 2025), Minnesota Legal Studies Research Paper No 25-06.
Leave a Reply