The design of a Tort law to control accidents

In this paper we analyse a two-stage game involving the government and n agents who engage in a single activity (driving). The government establishes the legal policy setting and the agents proceed to play a non-cooperative game of incomplete information with a risk of accident in which their behavioral strategy is their level of care. We examine the Nash-equilibrium conditions for single-activity accidents between heterogeneous agents, ‘good’ drivers or ‘bad’ drivers allowing a variable damage function and a liability rule defined on the cube. The relative desirability for society of alternative equilibria and the conditions under which they can obtain are discussed. The constraints which circumscribe the ability of the government to induce an equilibrium involving careful driving are demonstrated. It transpires that when the proportion of good drivers increases, it becomes more difficult to sustain a careful equilibrium whereas an equilibrium of reckless behavior becomes easier to sustain. Various extensions of the models are also presented.