Obviously Strategy Proof Liability Rules

Abstract

Legal systems worldwide have gravitated toward comparative fault despite the theoretical equivalence of multiple liability regimes in achieving efficient care levels. This Article argues that the superiority of comparative fault lies in its game-theoretic robustness. Specifically, the comparative fault regime's ability to make compliance a dominant strategy. We analyze when liability rules can be strategy-proof (compliance is always optimal regardless of others' actions) and obviously strategy-proof (this dominance is transparent to decision-makers). We establish fundamental limits: when total liability cannot exceed actual harm, no rule can make compliance globally dominant once parties' actions interact as complements or substitutes. However, a Proportional Excess-Benefit (PEB) rule—splitting losses based on each actor's saved compliance costs—is unique in achieving strategy-proofness for independent externalities and on relevant one-sided domains where mistakes are most costly. The rule becomes obviously strategy-proof when compliant parties bear no residual liability. We demonstrate how comparative fault implements PEB principles in bilateral accidents, explaining its widespread adoption. For multiple tortfeasors, PEB offers implementable guidance superior to traditional apportionment schemes. The framework extends across tort contexts from bilateral accidents to mass torts, providing robust incentives even when parties cannot predict others' behavior.