Excessive spending by firms to avoid accidents: Is it a concern in practice?

Shavell’s [Shavell, S. (1986). The judgment proof problem. International Review of Law and Economics, 6, 45–58] original model of the judgment proof problem treats costs of care to prevent accidents as non-monetary. Noting that this is unrealistic when injurers are firms, several authors have found that with monetary care costs, some judgment-proof firms perversely take excess rather than insufficient care. In this paper, we make explicit the quite specific assumptions required for the excess-care result to arise even in theory, and demonstrate that, even under these assumptions, the result is likely to be quantitatively unimportant. We also suggest an alternative model that, while treating care costs as monetary, avoids the excess-care result.