The Regulator and the Judge : The Optimal Mix in The Control of Environmental Risk
AbstractA firm engaged in activities which are environmentally risky has private informationboth on her choice of safety care and on the level of her assets. Public authorities havea stake in implementing a high level of prevention effort and in unveiling the true levelof assets for liability payments. We characterize the optimal second-best public policytowards risk prevention in this asymmetric information setup. This policy takes theform of monitoring both on safety care and on wealth, with probabilities of investigation supplemented with fines. The monitoring takes place both ex ante and ex post, i.e.,before or after an accident has taken place. We show that some sort of separationbetween the regulatory tasks and the legal intervention is called for : at the ex antestage, more resources should be allocated to the monitoring on ?technical? aspects ofthe underlying risk (i.e., the care exercised by the firm) than on ?financial? aspects (i.e.,the firm?s collectable wealth) ; at the ex post stage, monitoring should only concernfinancial aspects.
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Bibliographic InfoArticle provided by Dalloz in its journal Revue d'économie politique.
Volume (Year): Volume 118 (2008)
Issue (Month): 6 ()
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Web page: http://www.cairn.info/revue-d-economie-politique.htm
Regulation; Liability; Environmental Risk; Asymmetric Information;
Other versions of this item:
- HIRIART Yolande & MARTIMORT David & POUYET Jerome, 2006. "The Regulator and the Judge: The Optimal Mix in The Control of Environmental Risk," LERNA Working Papers 06.27.220, LERNA, University of Toulouse.
- Yolande Hiriart & David Martimort & Jérôme Pouyet, 2005. "The Regulator and the Judge: The Optimal Mix in TheControl of Environmental Risk," Working Papers hal-00243027, HAL.
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