ABSTRACT
The nirvana fallacy involves the usually implicit and often unconscious assumption that some real-world costs of a given endeavor are zero, and that certain liability rules will cause the model's actors to optimize all the remaining costly activities. Demsetz, Harold proposition is widely known and cited by economists, Polinsky, A. Mitchell and Shavell, Steven cling to the nirvana fallacy in their assertion that strict liability beats negligence as a means of assigning liability for toxic environmental torts, because it causes producers to internalize the costs of injury. The Polinsky-Shavell theoretical assertions may well be correct on the empirical issue that ultimately Exxon ought to be strictly liable for oil spill damages in Prince William Sound. Strict liability with a defense of contributory negligence, in which defendants bear plaintiffs' losses unless it can be shown that the loss would not have resulted except for the plaintiff's misbehavior, continues to gain in acceptance.
