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Contractor selection problem under extended liability

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  • Ichinose, Daisuke
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    Abstract

    This paper solves the problem of a principal firm's choice of contracting agents under extended liability, where agents have the possibility of causing an accident and also are at risk of becoming insolvent. The analysis shows that the negligence rule for contracting agents enhances the price competitiveness of the agent who takes proper precautions and thus that the liability rule consisting of the negligence rule on contracting agents that extends liability to the principal firm is superior to other types of liability rules.

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    Bibliographic Info

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

    Volume (Year): 31 (2011)
    Issue (Month): 1 (March)
    Pages: 48-57

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    Handle: RePEc:eee:irlaec:v:31:y:2011:i:1:p:48-57

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

    Related research

    Keywords: Insolvent injurers Strict liability Negligence rule Extended liability;

    References

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    1. Yolande Hiriart & David Martimort, 2006. "The benefits of extended liability," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 562-582, 09.
    2. Yeon-Koo Che & Kathryn E. Spier, 2008. "Strategic Judgment Proofing," NBER Working Papers 14183, National Bureau of Economic Research, Inc.
    3. Dionne, G. & Spaeter, S., 1998. "Environmental Risk and Extended Liability: the Case of Green Technologies," Ecole des Hautes Etudes Commerciales de Montreal-, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques. 98-12, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
    4. Marcel Boyer & Jean-Jacques Laffont, 1994. "Environmental Risks and Bank Liability," CIRANO Working Papers 94s-22, CIRANO.
    5. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, Elsevier, vol. 6(1), pages 45-58, June.
    6. 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, Oxford University Press, vol. 13(1), pages 232-58, April.
    7. 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.
    8. Heyes, Anthony G, 1996. "Lender Penalty for Environmental Damage and the Equilibrium Cost of Capital," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 63(250), pages 311-23, May.
    9. 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.
    10. 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.
    11. Kraakman, Reiner H, 1986. "Gatekeepers: The Anatomy of a Third-Party Enforcement Strategy," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 2(1), pages 53-104, Spring.
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