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In this paper, I assert that, if the potential injurer’s activity involves externalities unrelated to accidents, the strict liability rule minimizing only the social cost associated with accidents does not induce the social optimum. I also demonstrate that if the externalities are positive, the negligence rule can perform better than the strict liability rule by selecting the due care appropriately, whereas it cannot if the externalities are negative. This argument can be applied to the product liability law.In this paper, I assert that, if the potential injurer’s activity involves externalities unrelated to accidents, the strict liability rule minimizing only the social cost associated with accidents does not induce the social optimum. I also demonstrate that if the externalities are positive, the negligence rule can perform better than the strict liability rule by selecting the due care appropriately, whereas it cannot if the externalities are negative. This argument can be applied to the product liability law.
