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Environmental Policy Based on Strict Liability: Implications of Uncertainty and Bankruptcy

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  • Bruce A. Larson
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    Abstract

    A firm-level model is developed to analyze the impacts of bankruptcy and uncertain firm wealth on incentives for safety under a strict liability rule. Future damages and wealth are uncertain, and a firm's income earning activities that possibly create damages are incorporated into the model. This analysis shows that firms do not always undertake more of a risky activity than is socially desirable. For the extremely hazardous industry case, larger firms always undertake less of a risky activity than smaller firms. For the cyclical industry case, larger firms do not always conduct less of a risky activity than smaller firms.

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    Bibliographic Info

    Article provided by University of Wisconsin Press in its journal Land Economics.

    Volume (Year): 72 (1996)
    Issue (Month): 1 ()
    Pages: 33-42

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    Handle: RePEc:uwp:landec:v:72:y:1996:i:1:p:33-42

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    Web page: http://le.uwpress.org/

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    Cited by:
    1. 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.
    2. John Stranlund & Wei Zhang, 2008. "Bankruptcy risk and the performance of tradable permit markets," Economics Bulletin, AccessEcon, vol. 17(9), pages 1-9.
    3. Loureiro, Maria L., 2008. "Liability and food safety provision: Empirical evidence from the US," International Review of Law and Economics, Elsevier, vol. 28(3), pages 204-211, September.
    4. Thomas J. Miceli & Kathleen Segerson, 2001. "Do Exposure Suits Produce a 'Race to File'? An Economic Analysis of a Tort for Risk," Working papers 2002-42, University of Connecticut, Department of Economics, revised Jun 2004.
    5. Beckmann, Volker & Soregaroli, Claudio & Wesseler, Justus, 2009. "Ex-ante regulation and ex-post liability under uncertainty and irreversibility: governing the coexistence of GM crops," Economics Discussion Papers 2009-53, Kiel Institute for the World Economy.

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