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Strict Liability, Capped Strict Liability, and Care Effort under Asymmetric Information

  • Gérard Mondello

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université Nice Sophia Antipolis [UNS])

This paper compares the effectiveness of strict liability and capped strict liability regimes in an agency relationship among a regulatory agency and operators of risky activities. Under a double asymmetric information assumption (wealth and efficiency in care effort), it shows that capping liability is more efficient than keeping with strict liability, this at the price of an informational rent. Efficiency means that the efficient agent supplies the level of safety effort equivalent to the first best solution one. At the optimum, this rent is minimized by the efficient contract supplied by the principal.

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Paper provided by HAL in its series Post-Print with number hal-00727213.

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Date of creation: 2012
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Publication status: Published, Journal of Institutional and Theoretical Economics, 2012, 168, 2, pp. 232-251(20)
Handle: RePEc:hal:journl:hal-00727213
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00727213
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  1. Heyes, Anthony G, 1996. "Lender Penalty for Environmental Damage and the Equilibrium Cost of Capital," Economica, London School of Economics and Political Science, vol. 63(250), pages 311-23, May.
  2. Guiseppe Dari-Mattiacci, 2006. "Limiting Limited Liability," Tinbergen Institute Discussion Papers 06-070/1, Tinbergen Institute.
  3. G. Dari Mattiacci & G.G.A. de Geest, 2004. "When Will Judgment Proof Injurers Take Too Much Precaution?," Working Papers 04-27, Utrecht School of Economics.
  4. Boyer, M. & Laffont, J.J., 1995. "Environmental Risks and Bank Liability," Cahiers de recherche 9501, Universite de Montreal, Departement de sciences economiques.
  5. Hiriart, Yolande & Martimort, David, 2004. "The Benefits of Extended Liability," IDEI Working Papers 334, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jun 2005.
  6. Tsuyoshi Toshimitsu & Naoto Jinji, 2007. "Quality Differentiation, Welfare, And The Mode Of Competition In A Vertically Differentiated Product Market: A Note," The Japanese Economic Review, Japanese Economic Association, vol. 58(3), pages 407-416.
  7. Marcel Boyer & Jean-Jacques Laffont, 1995. "Environmental Protection, Producer Insolvency and Lender Liability," CIRANO Working Papers 95s-50, CIRANO.
  8. Thomas J. Miceli & Kathleen Segerson, 2001. "A Note on Optimal Care by Wealth-Constrained Injurers," Working papers 2002-44, University of Connecticut, Department of Economics, revised May 2002.
  9. Schmitz, Patrick W., 2000. "On the joint use of liability and safety regulation," International Review of Law and Economics, Elsevier, vol. 20(3), pages 371-382, September.
  10. Marcel Boyer & Donatella Porrini, 2007. "Sharing Liability Between Banks and Firms: The Case of Industrial Safety Risk," CIRANO Working Papers 2007s-04, CIRANO.
  11. T. Randolph Beard, 1990. "Bankruptcy and Care Choice," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 626-634, Winter.
  12. Dieter Balkenborg, 2001. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk: Comment," American Economic Review, American Economic Association, vol. 91(3), pages 731-738, June.
  13. Faure, Michael & Wang, Hui, 2008. "Financial caps for oil pollution damage: A historical mistake?," Marine Policy, Elsevier, vol. 32(4), pages 592-606, July.
  14. repec:ebl:ecbull:v:11:y:2006:i:1:p:1-7 is not listed on IDEAS
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