No-Fault for Motor Vehicles: An Economic Analysis

No-Fault for Motor Vehicles: An Economic Analysis Yu-Ping Liao, National Cheng-chi University, and
Michelle J. White, University of California, San Diego This article compares incentives and efciency under the pure tort system (the com-
parative 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 le lawsuits if their
damages exceed a certain threshold. We nd that no single liability system always
dominates on efciency 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 sys-
tems, in which drivers choose between no-fault or pure tort systems, lead to less
efcient results because drivers choose the pure tort rule too often. 1. Introduction Fifteen states in the United States; one province in Canada; and two provinces in Australia, New Zealand, and Israel have replaced traditional
tort law with no-fault systems for deciding disputes arising from traf-
c accidents. Under tort law, accident victims have the right to collect
compensation for their damage from injurers if a court nds that injurers
were negligent. The nearly universal tort liability rule is the rule of com-
parative negligence, which makes injurers and victims share the victims We are grateful to Jennifer Arlen, Omri Ben Shahar, Aaron Edlin, Dan Klerman, Roger Noll, Mitch Polinsky, an anonymous referee, and participants at talks at the 1999 ALEA Conference, Michigan, University of Southern California, Stanford, and Berkeley for very helpful comments. Michelle White also thanks the National Science Foundation Law and Social Science and Economics Programs for research support under grant number NSF-SBR-9617712. 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@ucsd.edu.

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