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Excessive spending by firms to avoid accidents: Is it a concern in practice?

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  • van 't Veld, Klaas
  • Hutchinson, Emma

Abstract

Shavell's [Shavell, S. (1986). The judgment proof problem. International Review of Law and Economics, 6, 45-58] original model of the judgment proof problem treats costs of care to prevent accidents as non-monetary. Noting that this is unrealistic when injurers are firms, several authors have found that with monetary care costs, some judgment-proof firms perversely take excess rather than insufficient care. In this paper, we make explicit the quite specific assumptions required for the excess-care result to arise even in theory, and demonstrate that, even under these assumptions, the result is likely to be quantitatively unimportant. We also suggest an alternative model that, while treating care costs as monetary, avoids the excess-care result.

Suggested Citation

  • van 't Veld, Klaas & Hutchinson, Emma, 2009. "Excessive spending by firms to avoid accidents: Is it a concern in practice?," International Review of Law and Economics, Elsevier, vol. 29(4), pages 324-335, December.
    • Handle: RePEc:eee:irlaec:v:29:y:2009:i:4:p:324-335
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    3. Eberl, Jakob & Jus, Darko, 2012. "The year of the cat: Taxing nuclear risk with the help of capital markets," Energy Policy, Elsevier, vol. 51(C), pages 364-373.
    4. Thomas P. Lyon & Haitao Yin & Allen Blackman & Kris Wernstedt, 2018. "Voluntary Cleanup Programs for Brownfield Sites: A Theoretical Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 70(2), pages 297-322, June.
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    6. Arbel, Yonathan A., 2016. "Shielding of assets and lending contracts," International Review of Law and Economics, Elsevier, vol. 48(C), pages 26-35.

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