A rule of strict liability leads to...

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BlackTom AI · Accepted Answer

To analyze the effect of a strict liability rule, consider who bears the cost of harm and how that affects incentives.
Option 1: efficient precaution by injurers but not by victims. Under strict liability, the injurer is responsible for damages regardless of fault, so the expected cost to the injurer includes the potential harm. This creates an incentive for the injurer to take efficient precautions to reduce the probability of loss. The victim, however, typically faces no liability for the harm they suffer, so the victim does not incur a cost from non-precaution in the same way. As a result, the victim has little to gain from taking precautions, making efficient precautions by victims unlikely under strict liability.
Option 2: efficient precaution by victims but not by injurers. This would require victims to bear the costs of harms they suffer in a way that motivates them to prevent harm, or for the rule to deter injurers more than victims. Under strict liability, the burden is on the injurer, not the victim, so the incentive for victims to take precautions is weaker or absent. Therefore this option misstates the incentive structure created by strict liability.
Option 3: efficient precaution by both injurers and victims. For both parties to independently take efficient precautions, each would need to internalize the total expected harm. With strict liability placing the burden on the injurer (and not on the victim), the victim does not face a cost from their own lack of precaution, which dampens the incentive for victims to invest in safety. Hence, simultaneous efficient precautions by both parties is not the typical outcome of strict liability.
In sum, under a rule of strict liability the injurer internalizes the cost of harm and has a strong incentive to minimize risk, while the victim does not bear liability and thus has weaker incentive to take precaution. This aligns with the first option and misaligns with the other two statements.

SU25 ECON 522 001 ZFF Self Quiz, Week 4 part 2

A rule of strict liability leads to...

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