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Modelling the choice between regulation and liability in terms of social welfare

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Author Info
Marcel Boyer
Donatella Porrini

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Abstract

Using a formal political economy model with asymmetric information, we illustrate the conditions under which an environmental protection system based on extending liability to private financiers is welfare superior, inferior, or equivalent to a system based on an incentive regulatory scheme subject to capture by the regulatees. We explicitly consider the following factors: the cost of care and its efficiency in reducing the probability of an environmental accident, the social cost of public funds, the net profitability of the risky activities, the level of damages, and the regulatory capture bias. We characterize in such a parameter space the regions where one system dominates the other

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File URL: http://economics.ca/cgi/xms?jab=v37n3/04.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 37 (2004)
Issue (Month): 3 (August)
Pages: 590-612
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Handle: RePEc:cje:issued:v:37:y:2004:i:3:p:590-612

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Boyd, James & Ingberman, Daniel E, 1997. "The Search for Deep Pockets: Is "Extended Liability" Expensive Liability?," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(1), pages 232-58, April.
  2. Marcel Boyer & Jean-Jacques Laffont, 1995. "Environmental Protection, Producer Insolvency and Lender Liability," CIRANO Working Papers 95s-50, CIRANO. [Downloadable!]
    Other versions:
  3. Tracy R. Lewis, 1996. "Protecting the Environment When Costs and Benefits Are Privately Known," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 819-847, Winter. [Downloadable!] (restricted)
  4. Heyes, Anthony G, 1996. "Lender Penalty for Environmental Damage and the Equilibrium Cost of Capital," Economica, London School of Economics and Political Science, vol. 63(250), pages 311-23, May. [Downloadable!] (restricted)
  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. Menell, Peter S, 1991. "The Limitations of Legal Institutions for Addressing Environmental Risks," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 93-113, Summer. [Downloadable!] (restricted)
  7. Steven Shavell, 1983. "Liability for Harm Versus Regulation of Safety," NBER Working Papers 1218, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Marcel Boyer & Donatella Porrini, 2000. "Law versus Regulation: A Political Economy Model of Instrument Choice in Environmental Policy," CIRANO Working Papers 2000s-57, CIRANO. [Downloadable!]
  9. Steven Shavell, 1984. "A Model of the Optimal Use of Liability and Safety Regulation," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 271-280, Summer. [Downloadable!] (restricted)
  10. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June. [Downloadable!] (restricted)
  11. Schmitz, Patrick W., 2000. "On the Joint Use of Liability and Safety Regulation," MPRA Paper 12536, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  12. Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September. [Downloadable!] (restricted)
  13. Hahn, Robert W, 1990. " The Political Economy of Environmental Regulation: Towards a Unifying Framework," Public Choice, Springer, vol. 65(1), pages 21-47, April.
  14. Marcel Boyer & Tracy R. Lewis & Wei Lin Liu, 2000. "Setting standards for credible compliance and law enforcement," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 319-340, May. [Downloadable!] (restricted)
    Other versions:
  15. Lewis, Tracy R. & Sappington, David E. M., 1999. "Using decoupling and deep pockets to mitigate judgment-proof problems1," International Review of Law and Economics, Elsevier, vol. 19(2), pages 275-293, June. [Downloadable!] (restricted)
  16. Marcel Boyer & Jean-Jacques Laffont, 1994. "Environmental Risks and Bank Liability," CIRANO Working Papers 94s-22, CIRANO. [Downloadable!]
    Other versions:
  17. Pfaff, Alexander S P & Sanchirico, Chris William, 2000. "Environmental Self-Auditing: Setting the Proper Incentives for Discovery and Correction of Environmental Harm," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(1), pages 189-208, April.
  18. Tiller, Emerson H & Spiller, Pablo T, 1999. "Strategic Instruments: Legal Structure and Political Games in Administrative Law," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(2), pages 349-77, July.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Giraud-Heraud, Eric & Grazia, Cristina & Hammoudi, Abdelhakim, 2007. "Agrifood safety standards, market power and consumer misperceptions," 105th Seminar, March 8-10, 2007, Bologna, Italy 7849, European Association of Agricultural Economists. [Downloadable!]
  2. Yolande Hiriart & David Martimort & Jérôme Pouyet, 2009. "The public management of risk: Separating ex ante and ex post monitors," PSE Working Papers 2009-20, PSE (Ecole normale supérieure). [Downloadable!]
  3. HIRIART Yolande & MARTIMORT David, 2006. "The Benefits of Extended Liability," Working Papers 06.28.221, LERNA, University of Toulouse. [Downloadable!]
  4. Yolande Hiriart & David Martimort & Jérôme Pouyet, 2005. "The Regulator and the Judge: The Optimal Mix in TheControl of Environmental Risk," Working Papers hal-00243027_v1, HAL. [Downloadable!]
    Other versions:
  5. Eberhard Feess & Gerd Muehlheusser & Ansgar Wohlschlegel, 2009. "Environmental liability under uncertain causation," European Journal of Law and Economics, Springer, vol. 28(2), pages 133-148, October. [Downloadable!] (restricted)
  6. Marcel Boyer & Donatella Porrini, 2008. "The Efficient Liability Sharing Factor For Environmental Disasters: Lessons For Optimal Insurance Regulation," CIRANO Working Papers 2008s-03, CIRANO. [Downloadable!]
  7. Andrew F. Daughety & Jennifer F. Reinganum, 2003. "Markets, Torts and Social Inefficiency," Working Papers 0308, Department of Economics, Vanderbilt University. [Downloadable!]
    Other versions:
  8. Hiriart, Yolande & Martimort, David, 2004. "The Benefits of Extended Liability," IDEI Working Papers 334, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jun 2005. [Downloadable!]
  9. Juan José Ganuza & Fernando Gómez, 2003. "Optimal Negligence Rule under Limited Liability," Economics Working Papers 759, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2004. [Downloadable!]
  10. Gerrit de Geest & Giuseppe Dari-Mattiacci, 2005. "Soft Regulators, Though Judges," Working Papers 05-06, Utrecht School of Economics. [Downloadable!]
  11. Marcel Boyer & Donatella Porrini, 2007. "Sharing Liability Between Banks and Firms: The Case of Industrial Safety Risk," CIRANO Working Papers 2007s-04, CIRANO. [Downloadable!]
  12. Hiriart, Yolande & Martimort, David & Pouyet, Jérôme, 2005. "The Public Management of Environmental Risk: Separating Ex Ante and Ex Post Monitors," CEPR Discussion Papers 4992, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Pouliot, Sebastien & Sumner, Daniel A., 2006. "Traceability, Liability and Incentives for Food Safety and Quality," 2006 Annual meeting, July 23-26, Long Beach, CA 21121, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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