Multiple Tortfeasors in High-Risk Activities: When Bargain Shapes Liability

Many industrial accidents result from the actions of multiple agents. This is especially the case where one firm uses an input or a technology supplied by another firm. Both influence the level of risk - either by determining the quality of the input, or by choosing the level of care when putting that input to use. In this paper, we highlight the inefficiencies that may arise from such a setup, and in particular how the vertical market relationship between the two firms may alter their incentives to control risk. To address this, we propose a second-best sharing liability rule, which depends on the relative bargaining power of each firm in the contractual relationship. Our rule calls for collaboration between Courts and regulatory agencies.