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Excessive spending by firms to avoid accidents: Is it a concern in practice?

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  • van 't Veld, Klaas
  • Hutchinson, Emma

Abstract

Shavell's [Shavell, S. (1986). The judgment proof problem. International Review of Law and Economics, 6, 45-58] original model of the judgment proof problem treats costs of care to prevent accidents as non-monetary. Noting that this is unrealistic when injurers are firms, several authors have found that with monetary care costs, some judgment-proof firms perversely take excess rather than insufficient care. In this paper, we make explicit the quite specific assumptions required for the excess-care result to arise even in theory, and demonstrate that, even under these assumptions, the result is likely to be quantitatively unimportant. We also suggest an alternative model that, while treating care costs as monetary, avoids the excess-care result.

Suggested Citation

  • van 't Veld, Klaas & Hutchinson, Emma, 2009. "Excessive spending by firms to avoid accidents: Is it a concern in practice?," International Review of Law and Economics, Elsevier, vol. 29(4), pages 324-335, December.
  • Handle: RePEc:eee:irlaec:v:29:y:2009:i:4:p:324-335
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    References listed on IDEAS

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    Cited by:

    1. Jakob Eberl & Darko Jus, 2012. "Evaluating policies to attain the optimal exposure to nuclear risk," RSCAS Working Papers 2012/50, European University Institute.
    2. van 't Veld, Klaas & Shogren, Jason F., 2012. "Environmental federalism and environmental liability," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 105-119.
    3. Arbel, Yonathan A., 2016. "Shielding of assets and lending contracts," International Review of Law and Economics, Elsevier, vol. 48(C), pages 26-35.
    4. Rupayan Pal & Bibhas Saha, 2014. "Mixed Duopoly and Environment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(1), pages 96-118, February.
    5. Eberl, Jakob & Jus, Darko, 2012. "The year of the cat: Taxing nuclear risk with the help of capital markets," Energy Policy, Elsevier, vol. 51(C), pages 364-373.

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