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Liability for Industrial Accidents: A Comparison of Negligence and Strict Liability Systems

ECONOMIC and legal literature has recently contained many discussions of alternative liability rules and their impact on the allocation of resources.I Most students of the subject agree with the prediction by Coase that if there are negligible transactions costs, the initial structure of liability is irrelevant. Coase predicts that inefficient liability rules, that is, rules which do not yield a maximum joint product from an individual or organizational interaction, will be changed by inter-party bargaining. Since inefficient liability rules will always be replaced by bargained rules which the parties feel are efficient, the only rules which persist are efficient. Thus, through the process of bargaining, the same equilibrium arrangement of efficient rights and liabilities will prevail independent of the initial arrangement. Many authors, however, feel that this conclusion is useful only as a theoretical exercise and that actual situations are frequently dominated by transactions costs. If transactions costs are large enough, they can prevent bargaining over a rearrangement of rights, and, thus, the initial liability rules persist and influence the allocation of resources. Under such a situation public policy must be concerned with the allocation implications of initial liability rules, since the impact of these rules will persist. Against this background of a potential need for initial liability rules which produce an efficient allocation, there have been numerous articles which deal with the use of negligence versus strict liability systems. A negligence