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The (Mixed) Effects of Minimum Asset Requirements When There is a Possibility of Technological Change

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  • Jacob Julien

    (BETA, CNRS – University of Strasbourg, Faculté des Sciences Economiques et de Gestion, 61 avenue de la Forêt Noire, 67000, Strasbourg, Cedex, France)

Abstract

Civil liability and ex ante authorizations are usually combined to regulate risks from high-risk industries. Authorizations may require firms to be sufficiently endowed with assets. Such a requirement is made in order to force sufficient risk internalization by firms, thus ensuring optimal decisions on risk control. But most studies on the incentives provided by asset requirements for controlling risks have been conducted in a context of a unique technology of production. When the firm has the possibility of adopting new and more cost-efficient technology, we show that tightening the minimum asset requirement can have a non-monotonic effect on the firm’s technological choice: increasing the firm’s level of assets can lead to a divergence of private and social interests as regards the technological choice. This feature can be observed both when the level of harm is dependent on, or independent of, the level of activity.

Suggested Citation

  • 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.
    • Handle: RePEc:bpj:rlecon:v:17:y:2021:i:1:p:167-191:n:4
    DOI: 10.1515/rle-2018-0071
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    References listed on IDEAS

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    More about this item

    Keywords

    asset requirement; solvency; risk; technological change; civil liability; D81; K13; O33;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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