Efficient liability law when parties genuinely disagree

Abstract This article compares the classic liability rules, negligence, and strict liability, under hypothesis that injurers victims formulate subjective beliefs about probabilities of harm. Parties may reasonably disagree in their assessment precautionary measures available: a measure regarded as safe by one party be not other. By relying on notions Pareto efficiency “No Betting” efficiency, shows negligence is optimal rule when believe probability harm always higher than do, while with overcompensatory damages opposite case. The same results apply to bilateral accidents and, specifically, product-related harms competitive markets. Overcompensatory (“punitive”) provide consumers insurance against own pessimism. (JEL K13, D83, D62)