A NOTE ON SELECTION EFFECTS OF THE HAND RULE

Authors


  • Florian Baumann gratefully acknowledges financial support by the German Research Foundation (DFG). The authors are indebted to Anthony Ogus, Astrid Stadler, Tobias Tröger, and two anonymous referees for helpful suggestions.

Correspondence: Tim Friehe, Department of Economics, University of Konstanz, Box D 136, 78457 Konstanz, Germany. Tel: 0049 7531 88 2534; Fax: 0049 7531 88 4135; Email: tim.friehe@unikonstanz.de.

ABSTRACT

The famous Hand rule weighs the burden of precaution against the reduction in expected harm. The burden may be type-specific, implying different standards of care for different injurer types. We show that this fact may be exploited by principals in their search for minimized individual costs. Principals may hire agents with high cost of care-taking although other agents are available. This is shown in a unilateral-care setting either with perfect or with asymmetric information. We therefore highlight a neglected downside of the negligence rule.

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