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Environmental Policy Based on Strict Liability: Implications of Uncertainty and Bankruptcy

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  • Bruce A. Larson

Abstract

A firm-level model is developed to analyze the impacts of bankruptcy and uncertain firm wealth on incentives for safety under a strict liability rule. Future damages and wealth are uncertain, and a firm's income earning activities that possibly create damages are incorporated into the model. This analysis shows that firms do not always undertake more of a risky activity than is socially desirable. For the extremely hazardous industry case, larger firms always undertake less of a risky activity than smaller firms. For the cyclical industry case, larger firms do not always conduct less of a risky activity than smaller firms.

Suggested Citation

  • Bruce A. Larson, 1996. "Environmental Policy Based on Strict Liability: Implications of Uncertainty and Bankruptcy," Land Economics, University of Wisconsin Press, vol. 72(1), pages 33-42.
  • Handle: RePEc:uwp:landec:v:72:y:1996:i:1:p:33-42
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    Cited by:

    1. Thomas J. Miceli & Kathleen Segerson, 2005. "Do Exposure Suits Produce a "Race to File"? An Economic Analysis of a Tort for Risk," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 613-627, Autumn.
    2. John Stranlund & Wei Zhang, 2008. "Bankruptcy risk and the performance of tradable permit markets," Economics Bulletin, AccessEcon, vol. 17(9), pages 1-9.
    3. Alberini, Anna & Austin, David H., 1999. "Strict Liability as a Deterrent in Toxic Waste Management: Empirical Evidence from Accident and Spill Data," Journal of Environmental Economics and Management, Elsevier, vol. 38(1), pages 20-48, July.
    4. McManus, T. Clay & Schaur, Georg, 2016. "The effects of import competition on worker health," Journal of International Economics, Elsevier, vol. 102(C), pages 160-172.
    5. Beckmann, Volker & Soregaroli, Claudio & Wesseler, Justus, 2010. "Ex-ante regulation and ex-post liability under uncertainty and irreversibility: governing the coexistence of GM crops," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 4, pages 1-33.
    6. Loureiro, Maria L., 2008. "Liability and food safety provision: Empirical evidence from the US," International Review of Law and Economics, Elsevier, vol. 28(3), pages 204-211, September.
    7. Evans, Mary & Gilpatric, Scott & McKee, Michael & Vossler, Christian A., 2006. "Managerial incentives for compliance with environmental information disclosure programs," MPRA Paper 60386, University Library of Munich, Germany.

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