“Coase Theorem”, Competitive Market and Products Liability Law

1985 ◽  
Vol 20 (1) ◽  
pp. 39-48 ◽  
Author(s):  
Israel Gilead
Keyword(s):  
Transaction Costs ◽  
Point Of View ◽  
Coase Theorem ◽  
Invisible Hand ◽  
Market Forces ◽  
Liability Rule ◽  
Products Liability ◽  
Liability Rules ◽  
Liability Law ◽  
External Intervention

According to the famous “Coase Theorem”, market forces, under given conditions, will automatically, without any external intervention, bring about an efficient allocation of resources. These conditions, necessary for the smooth operation of the “invisible hand” which leads to efficiency, are denoted as “absence of transaction costs”, as the presence of transaction costs may impede this desired process. The main legal implication outlined by Coase is that absent transaction cost, there is no need, and no place, from an efficiency point of view, for liability rules: resource allocation would be the same either with or without them. An act which is efficient will be carried out despite a liability rule which imposes the burden of compensation on the actor. On the other hand, an inefficient act will be barred by market forces without the help of liability rules.

The Coase Theorem, the Nonempty Core, and the Legal Neutrality Principle

2019 ◽  
Vol 16 (1) ◽  
Author(s):  
Bertrand Crettez
Keyword(s):  
Resource Allocation ◽  
Transaction Costs ◽  
Cooperative Game ◽  
Coase Theorem ◽  
Pareto Optimal ◽  
Liability Rules ◽  
The Core ◽  
Optimal Allocations ◽  
Legal Position ◽  
Person Game

Abstract The Coase theorem states that where there are externalities and no transaction costs resource allocation is Pareto-optimal and independent of the stakeholders’ legal position. This result has been challenged many times. In the cooperative game approach to resource allocation, the refutation is made by constructing a three-person game which has an empty core under one set of liability rules—which implies that optimal allocations are coalitionally unstable–and a nonempty core under another set. In this example, however, the probability that the core is non-empty is rather high (5/6). Yet, even if coalitionally stable Pareto-optimal arrangements are likely, to establish the plain validity of the Coase theorem it must be shown that the legal neutrality statement also holds. We show that for the three-person cooperative game example mentioned above, the probability that the two assertions of the Coase theorem hold can be as low as 3/8.

Autonomous Vehicles, Technological Progress, and the Scope Problem in Products Liability

2019 ◽  
Vol 12 (2) ◽  
pp. 157-212
Author(s):  
Alexander B. Lemann
Keyword(s):  
Autonomous Vehicles ◽  
Human Error ◽  
Motor Vehicle ◽  
Liability Rule ◽  
Products Liability ◽  
Liability Law ◽  
Relative Safety ◽  
Wide Range ◽  
Tort System ◽  
Safety Features

Abstract Autonomous vehicles are widely expected to save tens of thousands of lives each year by making car crashes attributable to human error – currently the overwhelming majority of fatal crashes – a thing of the past. How the legal system should attribute responsibility for the (hopefully few) crashes autonomous vehicles cause is an open and hotly debated question. Most tort scholars approach this question by asking what liability rule is most likely to achieve the desired policy outcome: promoting the adoption of this lifesaving technology without destroying manufacturers’ incentives to optimize it. This approach has led to a wide range of proposals, many of which suggest replacing standard rules of products liability with some new system crafted specifically for autonomous vehicles and creating immunity or absolute liability or something in between. But, I argue, the relative safety of autonomous vehicles should not be relevant in determining whether and in what ways manufacturers are held liable for their crashes. The history of products liability litigation over motor vehicle design shows that the tort system has been hesitant to indulge in such comparisons, as it generally declines both to impose liability on older, more dangerous cars simply because they lack the latest safety features and to grant immunity to newer, safer cars simply because of their superior aggregate performance. These are instances in which products liability law fails to promote efficient outcomes and instead provides redress for those who have been wronged by defective products. Applying these ideas to the four fatalities that have so far been caused by autonomous vehicles suggests that just as conventional vehicles should not be considered defective in relying on a human driver, autonomous vehicles should not be immune when their defects cause injury.

Property Rules, Liability Rules and Externalities

2006 ◽  
Vol 24 (2) ◽  
pp. 99-126
Author(s):  
Antonio Nicita ◽  
Matteo Rizzolli
Keyword(s):  
Property Rights ◽  
Transaction Costs ◽  
Property Right ◽  
Legal Systems ◽  
Liability Rule ◽  
Liability Rules ◽  
Ex Ante ◽  
Court Intervention ◽  
Property Rule

Abstract In this paper we argue that traditional explanations of the dichotomisation of property rules and liability rules are somehow misleading, since they tend to neglect the evolutionary complementarity between die two rules in a world of incomplete property rights characterised by sizeable ex-ante transaction costs in rights’ definition. When rights are a complete bundle of well-defined uses, the application of a property rule reaffirms and reinforces the correlation between rights and duties. In a world of incomplete rights, externalities over undefined uses call for a court intervention aimed at defining a new property right through either a property rule or a liability rule. Independently of whether new rights are created by property or liability rules, die nature and die extent of future externalities over conflicting undefined uses could generate new processes of rights’ definition. The emergence of an externality always implies an evolutionary complementarity between property rules and liability rules whose boundaries actually depend, in alternative legal systems, on die degree of incompleteness of original rights.

From transaction costs to transaction value: Overcoming the frictional paradigm

2020 ◽  
pp. 51-81
Author(s):  
D. P. Frolov
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Path Dependence ◽  
Transaction Cost Economics ◽  
Cost Minimization ◽  
Low Cost ◽  
Coase Theorem ◽  
Transactional Analysis ◽  
Transaction Sector ◽  
Transaction Value

The transaction cost economics has accumulated a mass of dogmatic concepts and assertions that have acquired high stability under the influence of path dependence. These include the dogma about transaction costs as frictions, the dogma about the unproductiveness of transactions as a generator of losses, “Stigler—Coase” theorem and the logic of transaction cost minimization, and also the dogma about the priority of institutions providing low-cost transactions. The listed dogmas underlie the prevailing tradition of transactional analysis the frictional paradigm — which, in turn, is the foundation of neo-institutional theory. Therefore, the community of new institutionalists implicitly blocks attempts of a serious revision of this dogmatics. The purpose of the article is to substantiate a post-institutional (alternative to the dominant neo-institutional discourse) value-oriented perspective for the development of transactional studies based on rethinking and combining forgotten theoretical alternatives. Those are Commons’s theory of transactions, Wallis—North’s theory of transaction sector, theory of transaction benefits (T. Sandler, N. Komesar, T. Eggertsson) and Zajac—Olsen’s theory of transaction value. The article provides arguments and examples in favor of broader explanatory possibilities of value-oriented transactional analysis.

scholarly journals Economic Analysis of Accident Law: A New Liability Rule that Induces Socially Optimal Behaviour in Case of Limited Information

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Astha Srivastava ◽  
Ankur Srivastava
Keyword(s):  
Nash Equilibrium ◽  
Economic Analysis ◽  
Standard Of Care ◽  
Limited Information ◽  
Liability Rule ◽  
Rule Based ◽  
Liability Rules ◽  
Levels Of Care ◽  
Unique Nash Equilibrium ◽  
Optimal Behaviour

AbstractIn accident law, we seek a liability rule that will induce both the parties to adopt socially optimal levels of precaution. Economic analysis, however, shows that none of the commonly used liability rules induce both parties to adopt optimal levels, if courts have access only to ‘Limited Information’ on. In such a case, it has also been established (K. (2006). Efficiency of liability rules: a reconsideration. J. Int. Trade Econ. Dev. 15: 359–373) that no liability rule based on cost justified untaken precaution as a standard of care can be efficient. In this paper, we describe a two-step liability rule: the rule of negligence with the defence of relative negligence. We prove that this rule has a unique Nash equilibrium at socially optimal levels of care for the non-cooperative game, and therefore induces both parties to adopt socially optimal behaviour even in case of limited information.

On a Fallacy in the Coase Theorem and the Theorem of Transaction Costs Substitution

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Steven N. S. Cheung
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Coase Theorem ◽  
Economic Institutions ◽  
General Version ◽  
Historical Account ◽  
Rent Dissipation

AbstractThis paper first presents a historical account of the origin of the Coase Theorem. It then elaborates its significance in explaining the working of economic institutions. After expounding the concepts of transaction cost and rent dissipation, it points out an error in the Coase Theorem. Lastly, the paper propounds the Theorem of Transaction Costs Substitution as an extended and general version of the Coase Theorem.

Products Liability Law – Lessons from the Military and Industrial Contexts

2020 ◽  
Vol 13 (2) ◽  
pp. 303-322
Author(s):  
Nathan A. Schachtman
Keyword(s):  
Common Law ◽  
Consumer Products ◽  
State Court ◽  
Court Cases ◽  
Industrial Products ◽  
Products Liability ◽  
Product Use ◽  
Liability Law ◽  
Industrial Settings ◽  
The Military

AbstractThe policy bases for American products liability law have developed largely through a series of state court cases that involved products sold to ordinary consumers. These cases featured significant disparities between manufacturers and injured consumers in understanding latent risks from product use, and in their ability to avoid the risks and to absorb and to distribute the costs of the risks. The policy bases that appear cogent for consumer products fail to explain or justify the imposition of liability in many industrial settings, which involve military or industrial customers that are well aware of the products’ latent risks and that have moral, common law, statutory, and regulatory duties to ensure that the industrial products are used safely.

Orphan Drugs: The Question of Products Liability

1985 ◽  
Vol 10 (4) ◽  
pp. 491-513
Author(s):  
Susan F. Scharf
Keyword(s):  
Drug Development ◽  
Orphan Drug ◽  
Rare Diseases ◽  
Tort Law ◽  
Orphan Drugs ◽  
Products Liability ◽  
Liability Law ◽  
Design Defect ◽  
Liability Costs ◽  
Orphan Drug Development

AbstractOrphan drugs, essential for die treatment of persons widi rare diseases, generally are unprofitable for manufacturers to develop and market. While congressional and administrative efforts to promote die development of orphan drugs have met widi modest success, application of products liability doctrine to orphan drug sponsors could subvert those efforts. This Note describes die provisions of die Orphan Drug Act and analyzes products liability law with respect to orphan drug litigation. It argues that die goals of tort law support the imposition of liability for design defect, failure to warn and negligence in testing. Finally, die Note acknowledges diat liability costs create disincentives for orphan drug development and suggests mechanisms for reducing manufacturers’ liability concerns.

On Behavioural Asymmetry in Product Liability Law

2021 ◽  
Vol 12 (1) ◽  
pp. 40-64
Author(s):  
Thomas Verheyen
Keyword(s):  
Cognitive Biases ◽  
Product Liability ◽  
Point Of View ◽  
Evidence Based ◽  
European Law ◽  
Consumer Expectations ◽  
Liability Law ◽  
The Asymmetry ◽  
New Criterion

Abstract This theoretical article identifies the asymmetry between the producer and the consumer as the key to understanding product liability law. In an attempt to resolve the endless scholarly and jurisprudential debates on the proper criterion for defectiveness in European law, it first tracks the ways in which the commonly opposed consumer expectations and risk-utility test each fail to address the typical asymmetries between producers and consumers in a satisfying manner. Building upon the concept of ‘behavioural asymmetry’, it then develops a new criterion for defectiveness under European law: the behavioural risk-utility test. Under a behavioural risk-utility test, the producer is liable if the product is not reasonably safe for average users suffering from cognitive biases and other behavioural shortcomings. This test aptly combines the systemic point of view of risk-utility balancing with an evidence-based conception of asymmetry, and therefore provides a meaningful criterion for adjudicating product liability disputes.

Sign in / Sign up

Export Citation Format

Share Document