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Relative Performance of Liability Rules: Experimental Evidence

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  • Angelova, Vera
  • Attanasi, Giuseppe
  • Hiriart, Yolande

Abstract

We compare the performance of liability rules for managing environmental disasters when third parties are harmed and cannot always be compensated. A firm can invest in safety to reduce the likelihood of accidents. The firm's investment is unobservable to authorities. The presence of externalities and asymmetric information call for public intervention in order to define rules aimed at increasing prevention. We determine the investments in safety under No Liability, Strict Liability and Negligence rules, and compare these to the first best. Additionally, we investigate how the (dis)ability of the firm to fully cover potential damage affects the firm's behavior. An experiment tests the theoretical predictions. In line with theory, Strict Liability and Negligence are equally effective; both perform better than No Liability; investment in safety is not sensitive to the ability of the firm to compensate potential victims. In contrast with theory, prevention rates absent liability are much higher, and liability is much less effective, than predicted.

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Bibliographic Info

Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 12.05.362.

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Date of creation: Apr 2012
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Handle: RePEc:ler:wpaper:25818

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Cited by:
  1. Bentata Pierre, 2013. "Environmental Regulation and Civil Liability Under Causal Uncertainty: An Empirical Study of the French Legal System," Review of Law & Economics, De Gruyter, vol. 9(2), pages 239-263, October.
  2. Pierre Bentata, 2014. "Liability as a complement to environmental regulation: an empirical study of the French legal system," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 16(3), pages 201-228, July.
  3. Pierre Bentata & Karim Barkat, 2012. "Environmental Liability and Regulation: An Empirical Study of the French Institutional Division of Labour," CAE Working Papers 98, Aix-Marseille Université, CERGAM.

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