Civil liability, Knight's UnCertainty and non-diCtatorial regUlator Documents de travail GREDEG GREDEG Working Papers Series

Abstract: This paper reviews the foundations of the unilateral standard accident model underKnightian uncertainty. It extends the Teitelbaum (2007)’s seminal article (who introducesradical uncertainty) by expanding it from producers to victims and from the probabilitydistribution of accidents to the scale of damage. Mainly, it also considers a regulator whoaggregates the agents’ preferences (Neghisi (1960) type). Under the condition that thetroublemakers’ resources are sufficient to cover the damage, the article shows thatuncertainty does not preclude, first, the determination of a socially optimal level of care, andsecond, whatever the civil liability regime (strict liability or negligence) it shows that theydetermine the same level of socially first-best care. The solution is inefficient only when thepolluter’s wealth is insufficient to repair the victim’s losses