The Choice between Using Liability Law or Regulation - Essay Example

In cases where it is unclear whether the social benefits would exceed the social costs, then the cost should be put on the party that is best favored by a cost-benefit analysis, (Whittman, 2002). In cases in which it is not clear who the party is, then the cost should be placed upon the party or the activity which has the lowest transaction costs act in the market so as to correct errors in entitlements by inducing the given party to avoid social costs with minimal costs.             Both Liability law and regulation have multiple strengths and also a number of weaknesses.

Liability law is more efficient in cases where transaction costs are high although in cases where there are market imperfections, regulation may be used. The fact that a producer may be held liable even in cases where it has exercised all possible care under the liability law is a significant weakness besides the burden of proof lies solely on the defendant, (Eliadis, Hill, and Howlett, 2005). Besides, in cases where the injurer’s liability exceeds his assets, a greater degree of liability has no additional deterrent effect.

The general legal framework provides only minimal alternatives to the costly regulatory framework especially with regards to determining if less costly regulatory alternatives can be implemented, (Whittman, 2002).