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Efficiency of Liability-Sharing Rules: An Experimental Case

Author

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  • Julien Jacob
  • Eve-Angéline Lambert
  • Serge Garcia

Abstract

We investigate the relative performance of two liability-sharing rules for managing harms that are caused jointly by two firms. The firms can make investments to reduce the magnitude of the harm, but they face a limited solvency that can prevent them from paying for their share. We derive theoretical predictions, and compare them with observations made from a lab experiment. We show that insolvency leads to underinvestment, and that the relative performance of each rule depends on the relative degree of solvency of firms. From a social perspective, these results suggest that the liability-sharing rule should depend on the level of capitalization of firms.

Suggested Citation

  • Julien Jacob & Eve-Angéline Lambert & Serge Garcia, 2022. "Efficiency of Liability-Sharing Rules: An Experimental Case," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 178(1), pages 1-42.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2022-0001
    DOI: 10.1628/jite-2022-0001
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    Cited by:

    1. Julien Jacob & Eve-Angéline Lambert & Mathieu Lefebvre & Sarah Driessche, 2023. "Information disclosure under liability: an experiment on public bads," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 61(1), pages 155-197, July.

    More about this item

    Keywords

    environmental regulation; liability-sharing rules; multiple tortfeasors; firms' insolvency;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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