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Strict Liability, Capped Strict Liability, and Care Effort under Asymmetric Information

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  • Gérard Mondello

Abstract

This paper compares the effectiveness of regimes of strict liability and capped strict liability in an agency relationship among a regulatory agency and operators of risky activities. Under an assumption of double asymmetric information (wealth and efficiency in care effort), it shows that capping liability is more efficient than keeping with strict liability, this at the price of an informational rent. Efficiency means that the efficient agent supplies the level of safety effort equivalent to that in the first-best solution. At the optimum, the rent is minimized by the efficient contract supplied by the principal.

Suggested Citation

  • Gérard Mondello, 2012. "Strict Liability, Capped Strict Liability, and Care Effort under Asymmetric Information," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(2), pages 232-251, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201206)168:2_232:slcsla_2.0.tx_2-9
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    More about this item

    JEL classification:

    • K0 - Law and Economics - - General
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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