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American Law and Economics Review V4 N2 2002 (258-294)
© 2002 American Law and Economics Association

Article

No-Fault for Motor Vehicles: An Economic Analysis

Yu-Ping Liao and Michelle J. White

Yu-Ping Liao, National Cheng-chi University, and Michelle J. White, University of California, San Diego

Send correspondence to: Michelle J. White, Professor of Economics, University of California, San Diego, La Jolla, CA 92093-0508; Fax: (858) 534-7040; E-mail: miwhite{at}ucsd.edu.

Abstract

This article compares incentives and efficiency under the pure tort system (the comparative negligence rule) to those under pure and mixed no-fault systems. Under no-fault systems, drivers are allowed to opt out of no-fault and file lawsuits if their damages exceed a certain threshold. We find that no single liability system always dominates on efficiency grounds, but the pure tort system does best when costs of care are low, and pure no-fault does best when costs of care are high. Choice systems, in which drivers choose between no-fault or pure tort systems, lead to less efficient results because drivers choose the pure tort rule too often.


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