Contractor selection problem under extended liability
This paper solves the problem of a principal firm's choice of contracting agents under extended liability, where agents have the possibility of causing an accident and also are at risk of becoming insolvent. The analysis shows that the negligence rule for contracting agents enhances the price competitiveness of the agent who takes proper precautions and thus that the liability rule consisting of the negligence rule on contracting agents that extends liability to the principal firm is superior to other types of liability rules.
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- Boyd, James & Ingberman, Daniel E, 1997. "The Search for Deep Pockets: Is "Extended Liability" Expensive Liability?," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(1), pages 232-58, April.
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- Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-67, May.
- Heyes, Anthony G, 1996. "Lender Penalty for Environmental Damage and the Equilibrium Cost of Capital," Economica, London School of Economics and Political Science, vol. 63(250), pages 311-23, May.
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- Hutchinson, Emma & van 't Veld, Klaas, 2005. "Extended liability for environmental accidents: what you see is what you get," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 157-173, January.
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