Activity-Level Externalities and the Failure of Decoupling Liability

This paper puts in evidence that Shavell idea according to which we can have at least a party that takes an efficient level of activity, in a situation of bilateral accident, with the usual tort rules, is wrong. The most important example that there is this mistake is that authors state that a system of decoupling liability gives efficient results. This idea is wrong. In a situation of bilateral accident, even if we have a system of decoupling liability, the person who acts does not take into account the increase in the costs of precaution for the other party. Using the example of Coase, if people that go to live near a factory have bear their costs of precaution, however they do not take care of the increase of cost of precaution for the other party. So activity level is excessive. We can say that an efficient level of activity, in a situation of bilateral accident requests that the party bears his cost of precaution, the expected damage and the cost of precaution of the other party. These other costs are forgotten an so it seems that a party takes an efficient level of activity. Bu this is wrong because he does not bear the cost of precaution of the other party. A tax equal to the cost of precaution of the other party can be a possible solution. The tax was the solution imagined by Ronald Coase in 1960