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How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk

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Author Info
Pitchford, Rohan
Abstract

Recently, U.S. environmental law has shown a tendency toward increased lender liability. A model of a potentially judgment-proof owner of a firm, a lender, and a potential victim is developed in which this policy can increase accident frequency and reduce efficiency. Full, partial, and zero lender-liability rules and a minimum equity requirement are analyzed. Partial lender liability and an equivalent minimum equity requirement deliver the highest level of efficiency, although the former can deliver a higher contribution by the lender to the victim than the latter. Policy and empirical implications are also discussed. Copyright 1995 by American Economic Association.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 85 (1995)
Issue (Month): 5 (December)
Pages: 1171-86
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Handle: RePEc:aea:aecrev:v:85:y:1995:i:5:p:1171-86

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  1. Che, Yeon-Koo & Spier, Kathryn, 2006. "Strategic Judgment Proofing," MPRA Paper 6100, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Hiriart, Yolande & Martimort, David, 2004. "The Benefits of Extended Liability," IDEI Working Papers 334, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jun 2005. [Downloadable!]
  3. Dieter Balkenborg, 2001. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk: Comment," American Economic Review, American Economic Association, vol. 91(3), pages 731-738, June. [Downloadable!] (restricted)
  4. Austin, David & Alberini, Anna, 1998. "Strict Liability as a Deterrent in Toxic Waste Management: Empirical Evidence from Accident and Spill Data," Discussion Papers dp-98-16, Resources For the Future. [Downloadable!]
    Other versions:
  5. Tracy R. Lewis & David E. M. Sappington, 2001. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk: Comment," American Economic Review, American Economic Association, vol. 91(3), pages 724-730, June. [Downloadable!] (restricted)
  6. Rohan Pitchford, 2001. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk: Reply," American Economic Review, American Economic Association, vol. 91(3), pages 739-745, June. [Downloadable!] (restricted)
  7. Austin, David & Alberini, Anna, 2001. "Accidents Waiting to Happen: Liability Policy and Toxic Pollution Releases," Discussion Papers dp-01-06, Resources For the Future. [Downloadable!]
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  8. Bernard Sinclair-Desgagné, 2000. "Environmental Risk Management and the Business Firm," CIRANO Working Papers 2000s-23, CIRANO. [Downloadable!]
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