On the Incentive Effects of Damage Averaging in Tort Law

It has been generally accepted for unilateral-care models that care incentives are not affected by the use of either accurate damages or average damages if injurers lack knowledge of the precise damage level they might cause. This paper shows that in bilateral-care models with heterogeneous victims, consequences of averages as damage measure are critically dependent on the weighing of respective harm levels. Importantly, we establish that there is an average measure which allows the attainment of eficient care in the bilateral-care framework.