IDEAS home Printed from https://ideas.repec.org/p/ags/aaea11/103927.html
   My bibliography  Save this paper

Accidents Happen: The Effect of Uncertainty on Environmental Policy Design

Author

Listed:
  • Sproul, Thomas W.
  • Zilberman, David

Abstract

Major externality cases are random accidents which are not adequately addressed by the deterministic environmental policy literature -­‐ that of Pigouvian taxes, abatement subsidies and cap-­‐and-­‐trade. We consider a risk-­‐neutral industry where firms control the probability and Severity of accidents by preventive and responsive choices, but asymmetric information means Government only observes outcomes. We show that even without intervention, some care will be taken, however -­‐ we identify three policies that lead to the optimal solution: strict liability, a Stochastic subsidy, and a mandatory mutual insurance scheme. The subsidy policy may be very costly to taxpayers, especially when prevention affects the probability of accident occurrence, and strict liability may be excessively draconian; polluters are also victims and liabilities must exist regardless of adherence to professional standards of care. Thus, we propose a revenue-­‐neutral liability-­‐pooling scheme which plays a similar role to tradable pollution permits in the deterministic case.

Suggested Citation

  • Sproul, Thomas W. & Zilberman, David, 2011. "Accidents Happen: The Effect of Uncertainty on Environmental Policy Design," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103927, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea11:103927
    as

    Download full text from publisher

    File URL: http://purl.umn.edu/103927
    Download Restriction: no

    References listed on IDEAS

    as
    1. Graff Zivin, Joshua & Small, Arthur A., 2003. "Risk sharing in Coasean contracts," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 394-415, March.
    2. Swierzbinski Joseph E., 1994. "Guilty until Proven Innocent-Regulation with Costly and Limited Enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 127-146, September.
    3. Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Agricultural and Food Policy; Risk and Uncertainty;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea11:103927. 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: (AgEcon Search). General contact details of provider: http://edirc.repec.org/data/aaeaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.