IDEAS home Printed from https://ideas.repec.org/p/apu/wpaper/2004-02.html
   My bibliography  Save this paper

On the Limitation of Penalties and the Non-Equivalence of Penalties and Taxes

Author

Listed:
  • Stephan Marette
  • Estelle Gozlan
  • Bénédicte Coestier

Abstract

This paper compares the impacts of a penalty on accident and a per-unit tax on output, when social damages depend on the output of firms. The choice of the optimal regulation, aiming at internalizing a damage, is influenced both by the market power of firms and by their potential (in)solvency in case of accident. Output strategies influence the solvency situation of firms for paying a penalty, which may lead to multiple equilibria (all firms are either solvent or insolvent in case of accident). When social damages are large, the optimal penalty is capped for avoiding a situation with insolvent firms. In this case, a regulator implements a per-unit tax.

Suggested Citation

  • Stephan Marette & Estelle Gozlan & Bénédicte Coestier, 2004. "On the Limitation of Penalties and the Non-Equivalence of Penalties and Taxes," Working Papers 2004/02, INRA, Economie Publique.
    • Handle: RePEc:apu:wpaper:2004/02
    as

    Download full text from publisher

    File URL: https://www6.versailles-grignon.inra.fr/economie_publique/Media/fichiers/Working-Papers/Working-Papers-2004/WP_2004_02
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stephen F. Hamilton, 1998. "Taxation, Fines, and Producer Liability Rules: Efficiency and Market Structure Implications," Southern Economic Journal, John Wiley & Sons, vol. 65(1), pages 140-150, July.
    2. Lewis, Tracy R. & Sappington, David E. M., 1999. "Using decoupling and deep pockets to mitigate judgment-proof problems1," International Review of Law and Economics, Elsevier, vol. 19(2), pages 275-293, June.
    3. Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September.
    4. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
    5. Boyd, James, 2001. "Financial Assurance Rules and Natural Resource Damage Liability: A Working Marriage?," RFF Working Paper Series dp-01-11, Resources for the Future.
    6. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August.
    7. A. Mitchell Polinsky & William P. Rogerson, 1983. "Products Liability, Consumer Misperceptions, and Market Power," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 581-589, Autumn.
    8. Boyd, James, 2001. "Financial Assurance Rules and Natural Resource Damage Liability: A Working Marriage?," Discussion Papers 10673, Resources for the Future.
    9. Boyd, James & Ingberman, Daniel E, 1994. "Noncompensatory Damages and Potential Insolvency," The Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 895-910, June.
    10. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-367, May.
    11. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rouvière, Elodie, 2016. "Small is beautiful: firm size, prevention and food safety," Food Policy, Elsevier, vol. 63(C), pages 12-22.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eric Langlais & Maxime Charreire, 2020. "Should environment be a concern for competition policy when firms face environmental liability ?," EconomiX Working Papers 2020-25, University of Paris Nanterre, EconomiX.
    2. Boyer, Marcel & Porrini, Donatella, 2011. "The impact of court errors on liability sharing and safety regulation for environmental/industrial accidents," International Review of Law and Economics, Elsevier, vol. 31(1), pages 21-29, March.
    3. Bruce Hay & Kathryn E. Spier, 2005. "Manufacturer Liability for Harms Caused by Consumers to Others," American Economic Review, American Economic Association, vol. 95(5), pages 1700-1711, December.
    4. Bruce Hay & Kathryn E. Spier, 2004. "Manufacturer Liability for Harms Caused by Consumers to Others," NBER Working Papers 10972, National Bureau of Economic Research, Inc.
    5. Maxime Charreire & Eric Langlais, 2021. "Should environment be a concern for competition policy when firms face environmental liability ?," Post-Print hal-03208691, HAL.
    6. Yeon‐Koo Che & Kathryn E. Spier, 2008. "Strategic judgment proofing," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 926-948, December.
    7. Gérard Mondello, 2013. "Ambiguous Beliefs on Damages and Civil Liability Theories"," Post-Print halshs-00929948, HAL.
    8. Andrzej Baniak & Peter Grajzl, 2014. "Controlling Product Risks when Consumers are Heterogeneously Overconfident: Producer Liability vs. Minimum Quality Standard Regulation," CESifo Working Paper Series 5003, CESifo.
    9. Innes, Robert, 1999. "Optimal liability with stochastic harms, judgement-proof injurers, and asymmetric information1," International Review of Law and Economics, Elsevier, vol. 19(2), pages 181-203, June.
    10. Giuseppe Dari-Mattiacci & Gerrit De Geest, 2005. "Judgment Proofness under Four Different Precaution Technologies," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(1), pages 38-56, March.
    11. Kim, Chulyoung & Koh, Paul S., 2019. "Minimum Asset and Liability Insurance Requirements on Judgment-Proof Individuals When Harm is Endogenous," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 60(2), pages 141-161, December.
    12. G.G.A. de Geest & G. Dari Mattiacci, 2005. "Soft Regulators, tough judges," Working Papers 05-06, Utrecht School of Economics.
    13. Steven Shavell, 2005. "Liability for Accidents," NBER Working Papers 11781, National Bureau of Economic Research, Inc.
    14. Lewis, Tracy R. & Sappington, David E. M., 1999. "Using decoupling and deep pockets to mitigate judgment-proof problems1," International Review of Law and Economics, Elsevier, vol. 19(2), pages 275-293, June.
    15. Marcel Boyer & Donatella Porrini, 2004. "Modelling the choice between regulation and liability in terms of social welfare," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 590-612, August.
    16. Gérard Mondello, 2015. "Civil liability, Knight's UnCertainty and non-diCtatorial regUlator Documents de travail GREDEG GREDEG Working Papers Series," Working Papers hal-01251437, HAL.
    17. Charreire, Maxime & Langlais, Eric, 2021. "Should environment be a concern for competition policy when firms face environmental liability?," International Review of Law and Economics, Elsevier, vol. 67(C).
    18. Miceli Thomas J. & Segerson Kathleen, 2013. "Liability versus Regulation for Dangerous Products When Consumers Vary in Their Susceptibility to Harm and May Misperceive Risk," Review of Law & Economics, De Gruyter, vol. 9(3), pages 341-355, December.
    19. Gérard Mondello & Evens Salies, 2016. "Tort law under oligopolistic competition," Sciences Po publications 2016-29, Sciences Po.
    20. Jeong-Yoo Kim, 2024. "Law and Economics of Artificial Intelligence: Optimal Liability Rules for Accident Losses Caused by Fully Autonomous Vehicles," Korean Economic Review, Korean Economic Association, vol. 40, pages 49-75.

    More about this item

    Keywords

    Social damage; Externality; Liability; Judgment-proof firms; Magnitude of penalty; Tax;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    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:apu:wpaper:2004/02. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Régis Grateau (email available below). General contact details of provider: https://edirc.repec.org/data/epinrfr.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.