Efficient Liability Rules When Courts Make Errors in Estimation of the Harm: Complet Characterization

For liability rules to be efficient, it is important to take into account the full losses suffered by the victims, while deciding on the amount of damage to be paid by the injurers to the victims. While analyzing the efficiency characteristics of the liability rules it is generally assumed that courts, when adjudicating accident cases can calculate the harm suffered by the victims correctly and costlessly. One crucial factor that could affect damage awards or the liability payments and therefore the Efficiency characteristics of liability rules, is the error made by a court in estimating the harm suffered by the victims.