Damages Regimes, Precaution Incentives, and the Intensity Principle

This paper revisits the accident model at its roots and shows that the intensity principle provides a powerful analytical tool to handle a variety of issues in a unifying frame and based on common intuition. If courts impose inefficient standards, if a cap on liability exists, or if the principal must pay an information rent to induce precaution, the exact method of quantifying damages matters. The intensity principle allows comparing the intensity of precaution incentives under different damages regimes, such as strict liability, proportional liability, and the negligence rule. Moreover, it requires less restrictive assumptions than the more traditional approach.