The filtering effect of sharing rules

Abstract

Sharing rules have a filtering effect on violations: they prevent the most harmful violations and let the least harmful ones occur. We show the conditions under which the filtering effect improves social welfare and argue that this may explain why, in most areas of the law, sharing rules are, in general, preferred to rules that place the burden entirely on one party. Our analysis applies to loss sharing in tort liability, the allocation of police investigation efforts, contract remedies for nonverifiable breaches such as those that may occur in marriage and employment contracts, and the distribution of shares in partnerships. © 2005 by The University of Chicago. All rights reserved.