Date Posted: 2003
The correct functioning of liability may be plagued by error in determining damages and in setting due care. This paper revises the literature on the topic and makes a distinction between those situations in which these two types of errors occur irrespective of each other and those in which they occur jointly. Three liability rules are considered: strict liability, the standard version of simple negligence without causation rule and the Grady-Kahan model of simple negligence with causation rule. It is shown that these liability rules perform differently only if the two types of errors occur separately. If they occur jointly, all liability rules yield the same equilibrium level of precaution.