Prior Regulation versus Post Liability: The Choice between Input and Output Monitoring

PERFORMANCE may be monitored by either inputs or outputs. For example, a legal system may monitor and punish speeding (an input into the production of accidents) and/or monitor and punish for the accident (the output).' The balance between the two will be shown to depend on such factors as information, insurance and transaction costs. This analysis yields insight into a variety of issues in economics and politics. In particular, the choice between using legal as opposed to market solutions to policy problems, as well as the type of legal instrument actually chosen, will be explicated by reference to input and output monitoring procedure.