On the Judgment Proof Problem

A party who causes harm to others and is found legally liable but cannot fully pay is said to be judgment proof. When the party who causes the harm is judgment proof, the incentives provided by the negligence and strict liability rules diverge. The payment probabilities implied by the two rules also...

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Bibliographic Details
Published in:The Geneva Papers on Risk and Insurance Theory 2002-12, Vol.27 (2), p.143-152
Main Author: MACMINN, RICHARD
Format: Article
Language:English
Subjects:
Accidents
Cost analysis
D000
D630
Damage
Due care
Economics
Economics and Finance
Expected utility
Fences
Finance
Financial Services
G00
Injuries
Insurance
Judgement
Judgment proof
K00
Legal liability
Legislation
Liability
Limited liability
Negligence
Original Paper
Payments
Probability
Risk
Risk aversion
Risk Management
Strict liability
Studies
Utility functions
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Summary:A party who causes harm to others and is found legally liable but cannot fully pay is said to be judgment proof. When the party who causes the harm is judgment proof, the incentives provided by the negligence and strict liability rules diverge. The payment probabilities implied by the two rules also differ. If the cost of care is non-monetary, as in Shavell's analysis, then the different probabilities generated by the two rules and the injurer's risk aversion combine to show that greater care is optimal under the negligence rule than the strict liability rule. If, however, the cost of care is monetary then the difference in probabilities generated by the two rules suffices to show greater care under the strict liability rule than under the negligence rule. The latter case holds for either a risk averse injurer or a corporate injurer.
ISSN:0926-4957
1554-964X
1573-6954
1554-9658
DOI:10.1023/A:1021900910310