Efficiency of (1, 2)-Incremental Liability Rules: Some Results

In economic analysis of tort law, ¹ the formal notion of a liability rule is used to analyse questions relating to efficient apportionment of accident losses among parties involved in harmful interactions. In the context of interactions involving two parties ² a liability rule apportions the loss, for instance, in case of an accident, between the parties on the basis of their levels of nonnegligence. ³ The central result in the extensive literature on the efficiency of liability rules ⁴ states that a liability rule is efficient ⁵ iff it ensures that whenever one party is negligent and the other is not, the negligent party is made to bear the entire loss. ⁶