Prevention, Limited Liability and Market Structure
Under a market setting, we analyse the impact of legal liability on prevention, taking into account the possible limited wealth of firms. We show that under strict liability, firms my choose ex ante not to be able to fully indemnify victims ex post: whatever the market structure, they may use limited liability strategically by investing in prevention in excess of what is socially optimal. The negligence rule prevents firms from over-investment. For high levels of damages, under both liability rules, firms exert an insufficient effort of prevention. A welfare analysis established that when the judgment proof problem is acute, the optimal public intervention ranges from banning the production to imposing the negligence rule.
|Date of creation:||2002|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.eaae.org|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
- Boyer, Marcel & Laffont, Jean-Jacques, 1997.
"Environmental risks and bank liability,"
European Economic Review,
Elsevier, vol. 41(8), pages 1427-1459, August.
- Boyer, M. & Laffont, J.J., 1995. "Environmental Risks and Bank Liability," Cahiers de recherche 9501, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Boyer, Marcel & Laffont, Jean-Jacques, 1994. "Environmental Risks and Bank Liability," IDEI Working Papers 45, Institut d'Économie Industrielle (IDEI), Toulouse.
- Boyer, M. & Laffont, J.J., 1995. "Environmental Risks and Bank Liability," Cahiers de recherche 9501, Universite de Montreal, Departement de sciences economiques.
- Marcel Boyer & Jean-Jacques Laffont, 1994. "Environmental Risks and Bank Liability," CIRANO Working Papers 94s-22, CIRANO.
- Hamilton, Stephen F., 1999. "Demand shifts and market structure in free-entry oligopoly equilibria," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 259-275, February.
- Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-67, May.
- Hamilton, Stephen F. & Sunding, David L., 2000. "Product liability, entry incentives and market structure," International Review of Law and Economics, Elsevier, vol. 20(2), pages 269-283, June.
- Eberhard Feess & Ulrich Hege, 2000. "Environmental Harm and Financial Responsibility*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 25(2), pages 220-234, April.
When requesting a correction, please mention this item's handle: RePEc:ags:eaae02:8531. 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)
If references are entirely missing, you can add them using this form.