Document Type
Article
Publication Date
10-10-2026
Abstract
We study how background risk affects optimal liability rules in a unilateral accident model with risk-averse parties. Under negligence, background risk borne by a prudent victim raises the optimal due-care standard relative to the benchmark case without background risk. Under strict liability, the optimal level of damages is higher when the prudent victim faces background risk but the injurer does not. When a prudent injurer faces background risk (with or without victim background risk), the optimal level of damages can be higher or lower than in the benchmark case. Our results are robust to the availability of actuarially fair insurance.
Scholarly Commons Citation
Friehe, Tim and Teitelbaum, Joshua C., "Background Risk and Optimal Liability Rules" (2026). Georgetown Law Faculty Publications and Other Works. 2719.
https://scholarship.law.georgetown.edu/facpub/2719