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The Efficient Liability Sharing Factor for Environmental Disasters: Lessons for Optimal Insurance Regulation*

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  • Marcel Boyer

    ()
    (Department of Economics, Universit� de Montr�al, C.P. 6128, succursale Centre-ville, Montreal QC, Canada H3C 3J7.)

  • Donatella Porrini

    ()
    (Facolt� di Economia Ecotekne, Universit� di Lecce, Via per Monteroni, Lecce 73100, Italy.)

Abstract

Using a structural model of the interactions between governments, firms and insurance companies, we characterize the distortions in environmental liability sharing between firms and insurance companies that the imperfect implementation of government policies implies. These distortions stem from three factors: the presence of moral hazard, the non-congruence between firms/insurers’ objectives and social welfare, and the courts’ imperfect assessment of safety care levels exerted by firms. We characterize cases where the efficient liability sharing factor is above or below its full information perfect implementation level. We derive comparative statics results indicating how sensitive the liability sharing factor is to changes in parameters (parameters that underlie the firm profit level and volatility, the cost of safety care, the monitoring cost, the social cost of public funds, the effectiveness of care in reducing the probability of accident) that are relevant for the characterization of optimal policies (liability sharing, safety care standards) toward environmental protection or the prevention of industrial accidents. We derive policy implications regarding environmental disaster insurance policies. The Geneva Papers (2008) 33, 337–362. doi:10.1057/gpp.2008.9

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Issues and Practice.

Volume (Year): 33 (2008)
Issue (Month): 2 (April)
Pages: 337-362

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Handle: RePEc:pal:gpprii:v:33:y:2008:i:2:p:337-362

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Cited by:
  1. Boyer, Marcel & Porrini, Donatella, 2011. "The impact of court errors on liability sharing and safety regulation for environmental/industrial accidents," International Review of Law and Economics, Elsevier, Elsevier, vol. 31(1), pages 21-29, March.
  2. Marcel Boyer & Donatella Porrini, 2010. "Optimal liability sharing and court errors: an exploratory analysis," Working Papers hal-00463913, HAL.

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