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Journal of Economic Perspectives: Vol. 5 No. 3 (Summer 1991)

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Symposium on the Economics of Liability

Article Citation

Shapiro, Carl. 1991. "Symposium on the Economics of Liability." Journal of Economic Perspectives, 5(3): 3-10.

DOI: 10.1257/jep.5.3.3

Abstract

Has the U.S. liability system run amok? Many commentators feel it has, as do many executives who feel that the liability "tax" discourages innovation and ultimately fails to promote safety. On the other hand, economists have ceaselessly pointed out that when one party is made liable for injury caused to another, an externality has been internalized. This symposium is intended to clarify just what economists know about the U.S. liability system: its worth as well as its flaws. The resulting picture is not a pretty one. Often liability is imposed on injurers as a means of compensating and insuring victims, despite the fact that such compensation and insurance could be accomplished much more effectively using direct accident insurance. Liability is an expensive means of providing compensation, since the legal liability system involves large transaction costs, mainly in the form of litigation expenses. Overall, America's institutions for assigning liability are poorly designed to promote economic efficiency.

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Authors

Shapiro, Carl (U CA, Berkeley)

JEL Classifications

K13: Tort Law and Product Liability
G22: Insurance; Insurance Companies

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