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Large-Scale Risks and Technological Change: What About Limited Liability?

Author

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  • JULIEN JACOB
  • SANDRINE SPAETER

Abstract

We consider a firm under strict liability that must choose between two risky technologies, one being safer but costlier than the other one. The total potential level of damage increases with the level of activity. We show that, under limited liability, technological change is welfare improving and leads to full risk internalization when the firms are sufficiently capitalized. Nevertheless, the percentage of firms adopting the safer technology and full risk internalization is higher under unlimited liability than under limited liability. We show how an adequate tax policy increases this percentage. We also determine the characteristics of a second-best tax policy.
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Suggested Citation

  • Julien Jacob & Sandrine Spaeter, 2016. "Large-Scale Risks and Technological Change: What About Limited Liability?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(1), pages 125-142, February.
    • Handle: RePEc:bla:jpbect:v:18:y:2016:i:1:p:125-142
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    File URL: http://hdl.handle.net/10.1111/jpet.2016.18.issue-1
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    Cited by:

    1. Dai, Meixing, 2011. "Financial market imperfections and monetary policy strategy," Economic Modelling, Elsevier, vol. 28(6), pages 2609-2621.
    2. Sukanto Bhattacharya & Surjasama Lahiri & Munirul Nabin, 2021. "A novel technology adoption in an OLG framework: examining the cross-generational effects of promotional policies," SN Business & Economics, Springer, vol. 1(4), pages 1-17, April.
    3. Nicolas Lampach & Sandrine Spaeter, 2016. "The Efficiency of (strict) Liability Rules revised in Risk and Ambiguity," Working Papers of BETA 2016-29, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    4. Jacob Julien, 2021. "The (Mixed) Effects of Minimum Asset Requirements When There is a Possibility of Technological Change," Review of Law & Economics, De Gruyter, vol. 17(1), pages 167-191, March.
    5. Dai, Meixing & Sidiropoulos, Moïse, 2011. "Monetary and fiscal policy interactions with central bank transparency and public investment," Research in Economics, Elsevier, vol. 65(3), pages 195-208, September.
    6. Meixing Dai, 2012. "External Constraint and Financial Crises with Balance Sheet Effects," International Economic Journal, Taylor & Francis Journals, vol. 26(4), pages 567-585, March.
    7. Gilbert Koenig & Irem Zeyneloglu, 2010. "Fiscal policy efficiency and coordination: The New Open Economy Macroeconomics Approach," Working Papers of BETA 2010-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    8. Pierre Dehez, 2013. "Cooperative provision of indivisible public goods," Theory and Decision, Springer, vol. 74(1), pages 13-29, January.
    9. Julien Jacob, 2011. "Innovation and diffusion in risky industries under liability law: the case of “double-impact” innovations," Working Papers of BETA 2011-24, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

    More about this item

    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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