Shmuel Leshem, ‘Allocation of Liability: On the Efficiency of Composite Sharing Rules’

Distributing liability according to injurers’ relative fault produces incentives for rent-seeking (excessive care) or free-riding (insufficient care) if precautions are complements or substitutes. We show that composite sharing rules consisting of different weights of proportional and equal allocations calibrate injurers’ incentives. The optimal weight of the proportional relative to the equal allocation increases with the degree of substitutability between injurers’ precautions. As the number of injurers increases, the optimal composite rule tends to an equal allocation if precautions are pure complements or one where the most careless injurer is liable for the entire harm if precautions are pure substitutes.

Leshem, Shmuel, Allocation of Liability: On the Efficiency of Composite Sharing Rules (October 1, 2016). Journal of Institutional and Theoretical Economics 173(1), pp 25-43 (2017).

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