On extended liability in a model of adverse selection
AbstractWe consider a model where a judgment-proof firm needs finance to realize a project. This project might cause an environmental hazard with a probability that is the private knowledge of the firm. Thus there is asymmetric information with respect to the environmental riskiness of the project. We consider the implications of a simple joint and strict liability rule on the lender and the firm where, in case of a damage, the lender is responsible for that part of the liability which the judgment-proof firm cannot pay. We use a weighted version of the neutral bargaining solution (Myerson 1983 / 1984) to determine the financial contract between the lender and the firm. In the given model we show that either full or a punitive liability is optimal.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0404.
Date of creation: Nov 2004
Date of revision:
Contact details of provider:
Postal: Streatham Court, Rennes Drive, Exeter EX4 4PU
Phone: (01392) 263218
Fax: (01392) 263242
Web page: http://business-school.exeter.ac.uk/about/departments/economics/
More information through EDIRC
judgement proofness; extended liability; neutral bargaining solution.;
Find related papers by JEL classification:
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability
- K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law
- Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Marcel Boyer & Donatella Porrini, 2007. "Sharing Liability Between Banks and Firms: The Case of Industrial Safety Risk," CIRANO Working Papers 2007s-04, CIRANO.
- Tirole, Jean, 2010.
"From Pigou to Extended Liability: On the Optimal Taxation of Externalities under Imperfect Financial Markets,"
Open Access publications from University of Toulouse 1 Capitole
http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
- Jean Tirole, 2010. "From Pigou to Extended Liability: On the Optimal Taxation of Externalities Under Imperfect Financial Markets," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 697-729.
- Tirole, Jean, 2008. "From Pigou to Extended Liability: On the Optimal Taxation of Externalities under Imperfect Financial Markets," IDEI Working Papers 503, Institut d'Économie Industrielle (IDEI), Toulouse.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carlos Cortinhas).
If references are entirely missing, you can add them using this form.