University of Southern California
University of Southern California Law and Economics Working Paper Series
Optimal Liability for Terrorism
Abstract
This paper analyzes the normative role for civil liability in aligning terrorism precaution incentives, when the perpetrators of terrorism are unreachable by courts or regulators. We consider the strategic interaction among targets, subsidiary victims, and terrorists within a sequential, game-theoretic model. The model reveals that, while an ‘optimal’ liability regime indeed exists, its features appear at odds with conventional legal templates. For example, it frequently prescribes damages payments from seemingly unlikely defendants, directing them to seemingly unlikely plaintiffs. The challenge of introducing such a regime using existing tort law doctrines, therefore, is likely to be prohibitive. Instead, we argue, efficient precaution incentives may be best provided by alternative policy mechanisms, such as a mutual public insurance pool for potential targets of terrorism, coupled with direct compensation to victims of terrorist attacks.
Subject Area
Law and Economics, Torts
Recommended Citation
Darius Lakdawalla and Eric Talley,
"Optimal Liability for Terrorism"
(January 2006).
University of Southern California.
University of Southern California Law and Economics Working Paper Series.
Working Paper 41.
http://law.bepress.com/usclwps/lewps/art41
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