Coase-Sandor Working Paper Series in Law and Economics

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Tort law faces a dilemma: how to adhere to a principle of make-whole compensation without entrenching social inequities. High-earning people receive greater compensation awards, resulting in an unequal distribution of deterrence. The deterrence disparity arises because injurers would rationally direct risky activity towards poorer victims to reduce liability costs; it persists even if race and gender classifications are barred from compensation. This Article offers a novel solution to the dilemma. It develops a decoupled liability regime under which injurers pay damages and are subject to standards of care that are invariant across individual victims, thus equalizing the distribution of deterrence. At the same time, victims receive compensatory awards that do vary, reflecting the “make whole” principle. The article demonstrates how to design this regime in a balanced-budget, incentive-compatible, manner.

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