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Lenders and Risky Activities: Strict Liability or Negligence Rule?

Author

Listed:
  • Gérard Mondello

    (Université Côte d'Azur, France
    GREDEG CNRS)

Abstract

The amendments made to CERCLA in 1996 reinforced the exemption of lenders that finance ultra-hazardous activities. Then, they become involved in liability only if they manage or own polluting activities. The paper compares strict liability and negligence rule in an agency model of vicarious liability type, and proposes to restore lenders as principal by applying negligence rules to them while operators would resort to a strict liability rule. This scheme leads the lender to propose to the borrower the most favorable loan level that induces the latter to provide the socially optimal security level.

Suggested Citation

  • Gérard Mondello, 2017. "Lenders and Risky Activities: Strict Liability or Negligence Rule?," GREDEG Working Papers 2017-13, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  • Handle: RePEc:gre:wpaper:2017-13
    as

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    File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2017-13.pdf
    File Function: First version, 2017
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Strict liability; negligence rule; moral hazard; judgment-proof; lenders; risky activities;

    JEL classification:

    • K0 - Law and Economics - - General
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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