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original papers : Safety regulation and monitor liability

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Author Info

  • Ulrich Hege

    ()
    (HEC School of Management, Department of Finance and Economics, F-78351 Jouy-en-Josas Cedex, France)

  • Eberhard Feess

    ()
    (Department of Economics, Aachen Technical University, Templergraben 64, D-52062 Aachen, Germany)

Abstract

We propose a simple liability rule when several agents are jointly responsible for monitoring a risky economic activity or certifying its security. Examples are safety controls for drugs or technical systems, environmental liability, or air safety accidents. The agents have private knowledge of their monitoring or avoidance costs. We adopt a mechanism design approach to ensure optimal monitoring incentives. Our innovation is to focus on information that is available or can be proxied when harm has occurred and when typically regulators and/or courts deliberate over fines and damages. By contrast, earlier proposals require more estimations of hypothetical accident scenarios and their ex ante probabilities. We argue that our rule promises substantial savings in information costs for courts and regulators and excludes likely sources of errors.

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Bibliographic Info

Article provided by Springer in its journal Review of Economic Design.

Volume (Year): 7 (2002)
Issue (Month): 2 ()
Pages: 173-185

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Handle: RePEc:spr:reecde:v:7:y:2002:i:2:p:173-185

Note: Received: 11 October 2000 / Accepted: 14 September 2001
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Related research

Keywords: Safety regulation; multiple monitors; Bayesian mechanism;

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Cited by:
  1. Joshua Anyangah, 2012. "On information, extended liability and judgment proof firms," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 14(1), pages 61-84, January.

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