The Efficient Liability Sharing Factor for Environmental Disasters: Lessons for Optimal Insurance Regulation*
Using a structural model of the interactions between governments, firms and insurance companies, we characterize the distortions in environmental liability sharing between firms and insurance companies that the imperfect implementation of government policies implies. These distortions stem from three factors: the presence of moral hazard, the non-congruence between firms/insurers’ objectives and social welfare, and the courts’ imperfect assessment of safety care levels exerted by firms. We characterize cases where the efficient liability sharing factor is above or below its full information perfect implementation level. We derive comparative statics results indicating how sensitive the liability sharing factor is to changes in parameters (parameters that underlie the firm profit level and volatility, the cost of safety care, the monitoring cost, the social cost of public funds, the effectiveness of care in reducing the probability of accident) that are relevant for the characterization of optimal policies (liability sharing, safety care standards) toward environmental protection or the prevention of industrial accidents. We derive policy implications regarding environmental disaster insurance policies. The Geneva Papers (2008) 33, 337–362. doi:10.1057/gpp.2008.9
Volume (Year): 33 (2008)
Issue (Month): 2 (April)
|Contact details of provider:|| Web page: http://www.palgrave-journals.com/|
Postal:Route de Malagnou 53, CH - 1208 Geneva
Phone: +41-22 707 66 00
Fax: +41-22 736 75 36
Web page: https://www.genevaassociation.org/
More information through EDIRC
|Order Information:||Web: http://www.springer.com/finance/journal/41288/PS2|
When requesting a correction, please mention this item's handle: RePEc:pal:gpprii:v:33:y:2008:i:2:p:337-362. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.