Optimal Liability Design Under Risk and Ambiguity

Franzoni, Luigi Alberto (2016) Optimal Liability Design Under Risk and Ambiguity. Bologna: Dipartimento di Scienze economiche DSE, p. 38. DOI 10.6092/unibo/amsacta/4432. In: Quaderni - Working Paper DSE (1048). ISSN 2282-6483.
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Abstract

This paper develops an original mean-variance model able to capture the disposition of the parties towards both standard risk and ambiguity. Ambiguity arises when the causal link between conduct and harm is not univocal, as is frequently the case with toxic torts. Risk aversion and ambiguity aversion tend to have a similar impact on optimal liability rules if greater care reduces the ambiguity perceived by the parties, i.e. if safety and predictability go hand in hand. Strict liability dominates negligence when the injurer has lower degrees of risk and ambiguity aversion than the victim and can formulate less ambiguous estimates of the probability of harm. The reverse result only holds under stronger conditions.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Franzoni, Luigi Alberto
Keywords
negligence vs. strict liability, scientific uncertainty, ambiguity, toxic torts
Subjects
ISSN
2282-6483
DOI
Deposit date
11 Jan 2016 12:47
Last modified
08 May 2017 13:06
URI

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