Varying Injurer Costs of Care, Negligence, and Self-Selection

Standard economic models of negligence set a single standard of care to which all injurers must conform. When injurers differ in their costs of care, this leads to distortions in individual care choices. This paper derives the characteristics of a negligence rule that induces optimal care by all injurers by means of self-selection. The principal features of the rule are (1) the due standard is set at the optimal care of the lowest cost injurer, and (2) liability increases gradually rather than abruptly as care falls below this standard. The results are consistent with the gradation in liability under certain causation rules and under comparative negligence.

Salvaging Historic Shipwrecks

The salvage of historic shipwrecks involves a debate between profit-oriented salvagers, who wish to maximize profit, and archeologists, who wish to maximize historical value. We use a principal-agent model to derive the optimal reward scheme for salvagers, including a minimum duty of care in conducting the salvage operation. A review of U.S. and international law suggests that, while there is an emerging recognition of the need to devote greater care to salvaging those wrecks that are located, current doctrines provide inadequate incentives to locate historic wrecks in the first place.