In risky activities the extrinsic incentives for care are driven mainly by liability rules and by the asset levels of potential injurers. When the level of assets of the potential injurer is endogenous, we show that softer standards outperform the traditional standards based on first-best...

The paper deals with a bilateral accident situation in which victims have heterogeneous costs of care. With perfect information, efficient care by the injurer raises with the victim's cost. When the injurer cannot observe at all the victim's type, and this fact can be verified by Courts,...