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Judgment proof defendants

Judgment proof defendants - Strict Liability will not work...

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Judgment-proof defendant - Injurer is able to pay J where J < D - How does this affect incentive? Depends on the liability rule o Unilateral – Strict Liability The expected damages the Injurer will pay, is not pD Will end up paying pJ, a curve everywhere below the pD curve What is the injurer’s expected cost? = cx+pJ the vertical sum of the cx and pJ curves When an injurer is judgment proof: Will result in moral hazard Injurer’s actual cost is not pD, can only pay $J, less than actual damages The injurer will undertake the level of precaution, x, that gives him the least cost. o Negligence Injurer’s cost curve: If x < δ, cx+pJ If x > δ, cx The closer δ is to x*, the greater probability of an efficient outcome. Never will the strict liability rule result in an efficient outcome The lower J is, the greater the moral hazard o What will make an Injurer behave in an efficient way? No Liability will not work, huge moral hazard
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Unformatted text preview: Strict Liability will not work, moral hazard, Injurer will behave below X* Negligence rule may or may not work, depends on the specific costs • At this point, nothing in our specific tort rules will make the Injurer behave efficiently • Solution : Legislative! o The judgment proof defendant will o Can we criminalize? Create a non-monetary penalty for the Injurer. o What if you HAVE to indemnify yourself? The idea behind mandatory insurance • Critics: o Say Insurance itself creates a moral hazard o Insurance solution: Deductible • Forces individual to NOTICE the risk involved Experience rating: • Insurance prices the policy depending on your level of risk to them Experience rating insurance: • Insurance companies behave like a court: o If you are a certain level of careful, on average, damages are low....
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