Laws and Norms : Experimental Evidence with Liability Rules

Summary: We conduct an experiment where participants choose between actions that provide private benefits but may also impose losses on strangers. Three legal environments are compared: no law, strict liability for the harm caused to others, and an efficiently designed negligence rule where damages are paid only when the harmful action causes a net social loss. Legal obligations are either perfectly enforced (Severe Law) or only weakly so (Mild Law), i.e., material incentives are then nondeterrent. We investigate how legal obligations and social norms interact. Our results show that liability rules strengthen pro-social behavior and suggest that strict liability has a greater effect than the negligence rule.