EFFICIENCY OF LIABILITY RULES WITH INTERDEPENDENT COSTS OF CARE

Abstract.  Most of the results of the law and economics literature relating to the question of efficiency of liability rules have been obtained in the context of two-party interactions in which the cost of care of each party is independent of the care level of the other. In this paper we analyse the question of efficiency of liability rules in the context of interactions in which the cost of care of at least one of the parties is not independent of the care level of the other and characterize efficient liability rules whenever possible and in all other instances we obtain impossibility results.