Liability and Information
The allocation of information is of paramount importance for the efficacy of liability law as an instrument to address externalities. This entry discusses several possible repercussions of imperfect information, such as inefficient caretaking resulting from the injurer’s imperfect information about the standard of care under negligence or distorted decisions about buying liability insurance. In addition, the contribution presents results from the literature on the incentives to acquire information about risk induced by liability law. Decision makers usually have the opportunity to improve their state of knowledge at a cost, and liability law will impact on the incentives to actually do so and to possibly share this information. Starting from Shavell (1992), we discuss – inter alia – literature analyzing the incentive for accurate harm assessment and the use of hindsight information in court, the effects of disclosure rules, or adjustments in due-care standards to further the generation of information in a process of learning-by-doing.
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