[The icon is blue to signal the fact that I added this link after the book was published, so the icon is not in the hardcopy]

The analysis in the text is not entirely correct. To see why, consider the example in the book, where each hunter has a .1 chance of killing Carl. Assume that the value to each hunter of hunting that day is (implausibly) $91,000.

If Al is hunting, the cost to Bill of potential liability under the legal rule I propose is $90,000, so if Al is hunting, Bill will hunt. Similarly, if Bill is hunting, Al will hunt. Hence one possible equilibrium is for both to hunt (another is for neither to hunt, as readers can check for themselves).

Suppose both are hunting. Their summed gain from hunting is $182,000. Carl's loss, a .19 chance of losing a million dollar life, is $190,000. This is an inefficient outcome. If we change the rule and make Al and Bill each liable for $500,000 if Carl is killed by both bullets, the cost to each of hunting becomes higher than the benefit and we get the efficient outcome. This rule, however, gives an inefficient outcome if (say) Al values hunting at $150,000 and Bill at only $93,000, since Al will hunt and Bill will not, even though the efficient solution is for both to hunt.

What is happening here is that the rule I recommend gives the correct marginal incentive but the incorrect total incentive. Given what Al is doing, it results in Bill doing the right thing; given what Bill is doing, it results in Al doing the right thing. But there can be situations, such as the one described above, where, if we start at an outcome given by that rule, simultaneously changing what both hunters are doing produces a net benefit.

This situation is analogous to one that arrises in the analysis of monopoly and is discussed in my Price Theory. If a monopoly is required to sell its output at marginal cost, it will produce the right quantity of output--provided it produces at all. But selling at marginal cost produces total revenue less than the total value to all consumers of what is being produced, so it may result in the firm producing nothing, because at that price it cannot cover its costs, when that is not the efficient outcome. To get efficiency in monopoly we must meet both the first efficiency condition--produce an additional unit if and only if its value to the perswon who gets it is at least as great as the cost of producing it (which is satisfied by selling at marginal cost)--and the second efficiency condition--produce if and only if the total value to consumers of what you produce is greater than the total cost of producing it.