Berkeley Program in Law and Economics

In recent years, ingenious entrepreneurs have invented new commodities by bundling contingent claims and marketing them. A liability right can be viewed as a contingent claim and analyzed like stock options or commodity futures. Since law prohibits markets for liability rights, no one knows how they would work. I assume no legal impediments to unbundling, packaging, and selling liability rights. I then predict how a competitive market would price liability rights. I use such an ideal market to critique the actual system of tort liability. Competition can solve many of the problems attributed by courts to contracts that reallocate tort liability.