On the Limitation of Penalties and the Non-Equivalence of Penalties and Taxes
AbstractThis paper compares the impacts of a penalty on accident and a per-unit tax on output, when social damages depend on the output of firms. The choice of the optimal regulation, aiming at internalizing a damage, is influenced both by the market power of firms and by their potential (in)solvency in case of accident. Output strategies influence the solvency situation of firms for paying a penalty, which may lead to multiple equilibria (all firms are either solvent or insolvent in case of accident). When social damages are large, the optimal penalty is capped for avoiding a situation with insolvent firms. In this case, a regulator implements a per-unit tax.
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Bibliographic InfoPaper provided by INRA, Economie Publique in its series Working Papers with number 2004/02.
Date of creation: 01 Sep 2004
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Social damage; Externality; Liability; Judgment-proof firms; Magnitude of penalty; Tax;
Other versions of this item:
- StÃ©phan Marette & Estelle Gozlan & BÃ©nÃ©dicte Coestier, 2005. "On the Limitation of Penalties and the Non-Equivalence of Penalties and Taxes," European Journal of Law and Economics, Springer, vol. 19(1), pages 135-151, January.
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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