Large-scale risks and technological change: What about limited liability?
AbstractWe consider a firm that has to choose a technology to produce a given good. This technology drives a multiplicative large-scale risk of incident for Society: the total potential level of damage increases with the level of activity. Contrary to what is often argued in the literature, we show that limited liability can be more incentive for technical change than an unlimited liability rule, depending on the magnitude of the technological change and on the firm's size. In a second part of the paper, taxes are introduced. We show how manipulating the tax rate with respect to the technological choice made by the firm still enlarges the set of parameters that lead to technological change under a limited liability rule. Our normative results provide some arguments in favor of the limited liability rule, often considered as the main explanation of partial large-scale risk internalization by firms.
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Bibliographic InfoPaper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2010-12.
Date of creation: 2010
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Technological risk; limited liability; incentives; technical choice; taxes.;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- K39 - Law and Economics - - Other Substantive Areas of Law - - - Other
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
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