VICARIOUS LIABILITY UNDER A NEGLIGENCE RULE

The previous literature has shown that if the agent has limited assets , the vicarious liability law under a strict liability rule can effect ively make the principal monitor her agent, and induce the agent to ta ke more care, which thereby reduces the social cost. In practice the n egligence rule still applies to many tort cases, and the principal's m onitoring evidence is often needed to prove the agent's negligence. It is possible that the principal will conceal the monitoring evidence f rom the court in order to avoid the vicarious liability. In such a cas e the society has to incur higher investigation cost than otherwise. T o save the investigation cost, the court may want to provide incentive s to induce honest reports either by lowering the due care level, or b y lowering the level of vicarious liability.