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The joint use of regulation and strict liability with multidimensional care and uncertain conviction

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  • Bhole, Bharat
  • Wagner, Jeffrey

Abstract

The purpose of this paper is to explore the joint use of regulation and strict liability when firms can take care in both observable and unobservable dimensions and when the firm's conviction for damages is uncertain. Much of the literature concerning joint use regards management of the judgment-proof problem; the take-home result of our paper is that if the harming party can take both observable and unobservable care, then joint use can improve welfare even in the absence of judgment-proofness. This is true even when penalty multipliers are allowed, provided social welfare is negatively related to the firm's expected liability costs. In fact, use of penalty multipliers further strengthens the case for joint use.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 28 (2008)
Issue (Month): 2 (June)
Pages: 123-132

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Handle: RePEc:eee:irlaec:v:28:y:2008:i:2:p:123-132

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Web page: http://www.elsevier.com/locate/irle

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References

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  1. Schmitz, Patrick W., 2000. "On the Joint Use of Liability and Safety Regulation," MPRA Paper 12536, University Library of Munich, Germany.
  2. 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.
  3. Steven Shavell, 2002. "Law versus Morality as Regulators of Conduct," American Law and Economics Review, Oxford University Press, vol. 4(2), pages 227-257.
  4. G.G.A. de Geest & G. Dari Mattiacci, 2005. "Soft Regulators, though judges," Working Papers 05-06, Utrecht School of Economics.
  5. Alberini, Anna & Austin, David H., 1999. "Strict Liability as a Deterrent in Toxic Waste Management: Empirical Evidence from Accident and Spill Data," Journal of Environmental Economics and Management, Elsevier, vol. 38(1), pages 20-48, July.
  6. Burrows, Paul, 1999. "Combining regulation and legal liability for the control of external costs," International Review of Law and Economics, Elsevier, vol. 19(2), pages 227-244, June.
  7. Segerson, Kathleen, 1990. "Liability for groundwater contamination from pesticides," Journal of Environmental Economics and Management, Elsevier, vol. 19(3), pages 227-243, November.
  8. Millock, Katrin & Sunding, David & Zilberman, David, 2002. "Regulating Pollution with Endogenous Monitoring," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 221-241, September.
  9. Trebilcock, Michael & Winter, Ralph A., 1997. "The economics of nuclear accident law," International Review of Law and Economics, Elsevier, vol. 17(2), pages 215-243, June.
  10. Bartsch, Elga, 1997. "Environmental liability, imperfect information, and multidimensional pollution control," International Review of Law and Economics, Elsevier, vol. 17(1), pages 139-146, March.
  11. repec:ebl:ecbull:v:11:y:2005:i:1:p:1-11 is not listed on IDEAS
  12. Hutchinson, Emma & van 't Veld, Klaas, 2005. "Extended liability for environmental accidents: what you see is what you get," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 157-173, January.
  13. Innes, Robert, 2004. "Enforcement costs, optimal sanctions, and the choice between ex-post liability and ex-ante regulation," International Review of Law and Economics, Elsevier, vol. 24(1), pages 29-48, March.
  14. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-67, May.
  15. Friesen, Lana, 2006. "The social welfare implications of industry self-auditing," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 280-294, May.
  16. Jeffrey Wagner & Gregory DeAngelo, 2005. "Characterizing regulation and negligence rule uncertainty in solid waste management," Economics Bulletin, AccessEcon, vol. 11(1), pages 1-11.
  17. Bruce Hay & Kathryn E. Spier, 2005. "Manufacturer Liability for Harms Caused by Consumers to Others," American Economic Review, American Economic Association, vol. 95(5), pages 1700-1711, December.
  18. Brian Roe, 2004. "Optimal Sharing of Foodborne Illness Prevention between Consumers and Industry: The Effect of Regulation and Liability," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 359-374.
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Citations

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Cited by:
  1. Grajzl, Peter & Baniak, Andrzej, 2009. "Industry self-regulation, subversion of public institutions, and social control of torts," International Review of Law and Economics, Elsevier, vol. 29(4), pages 360-374, December.
  2. BOYER, Marcel & PORRINI, Donatella, 2010. "Optimal Liability Sharing and Court Errors : An Exploratory Analysis," Cahiers de recherche 05-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  3. Marcel Boyer & Donatella Porrini, 2010. "The Impact of Court Errors on Liability Sharing and Safety Regulation for Environmental/Industrial Accidents," CIRANO Working Papers 2010s-48, CIRANO.
  4. Pierre Bentata, 2014. "Liability as a complement to environmental regulation: an empirical study of the French legal system," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 16(3), pages 201-228, July.
  5. Tim Friehe & Eric Langlais, 2014. "On the Political Economy of Public Safety Investments," EconomiX Working Papers 2014-8, University of Paris West - Nanterre la Défense, EconomiX.
  6. Reinshagen, Felix, 2011. "Standards and Incentives in Safety Regulation," Munich Dissertations in Economics 13430, University of Munich, Department of Economics.
  7. Reinshagen, Felix, 2012. "Standards and Incentives under Moral Hazard with Limited Liability," Discussion Papers in Economics 12750, University of Munich, Department of Economics.

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