IDEAS home Printed from https://ideas.repec.org/p/hhs/osloec/1992_022.html
   My bibliography  Save this paper

Environmental Accidents Under Moral Hazard and Limited Firm Liability

Author

Listed:
  • Strand, J.

Abstract

We study optimal government policy when firms' operations involve a risk of a large environmental accident, firms do not have sufficient assets to cover such costs, and the risk is affected by firms' efforts which are unobservable to outsiders. When firms' profits and government revenues have equal weights in the social welfare function, a first best can be implemented and requires that the firm be subsidized heavily when operating with no accident, and all its assets confiscated in the event of an accident. With a lower weight on firm profits the solution is always second best, with lower subsidies to the firm, and a firm effort lower than at the first-best solution. When firm investments affect both the required accident-preventing effort for given risk and the work effort required for a given output, the first best never involves specific investment subsidies, while a second-best solution generally always does. Copyright Kluwer Academic Publishers 1994
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Strand, J., 1992. "Environmental Accidents Under Moral Hazard and Limited Firm Liability," Memorandum 22/1992, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:1992_022
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. T. Randolph Beard, 1990. "Bankruptcy and Care Choice," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 626-634, Winter.
    4. Gabel H. Landis & Sinclair-Desgagne Bernard, 1993. "Managerial Incentives and Environmental Compliance," Journal of Environmental Economics and Management, Elsevier, vol. 24(3), pages 229-240, May.
    5. Schulze, William & d'Arge, Ralph C, 1974. "The Coase Proposition, Information Constraints, and Long-Run Equilibrium," American Economic Review, American Economic Association, vol. 64(4), pages 763-772, September.
    6. Jean-Jacques Laffont & Jean Tirole, 1990. "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, Oxford University Press, vol. 57(4), pages 597-625.
    7. Brander, James A. & Lewis, Tracy R., 1986. "Oligopoly and Financial Structure: The Limited Liability Effect," American Economic Review, American Economic Association, vol. 76(5), pages 956-970, December.
    8. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-641, June.
    9. Eirik Amundsen, 1992. "Optimal failure rates and penalty-bonus policies in the offshore petroleum sector," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 2(5), pages 469-489, September.
    10. Hahn, Robert W, 1990. "The Political Economy of Environmental Regulation: Towards a Unifying Framework," Public Choice, Springer, vol. 65(1), pages 21-47, April.
    11. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, October.
    12. Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, vol. 73(5), pages 912-927, December.
    13. Mayshar, Joram, 1977. "Should Government Subsidize Risky Private Projects?," American Economic Review, American Economic Association, vol. 67(2), pages 20-28, March.
    14. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    15. Robert E. Kohn, 1985. "A General Equilibrium Analysis of the Optimal Number of Firms in a Polluting Industry," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 347-354, May.
    16. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
    17. Spulber, Daniel F., 1985. "Effluent regulation and long-run optimality," Journal of Environmental Economics and Management, Elsevier, vol. 12(2), pages 103-116, 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. Strand, Jon, 1999. "Efficient environmental taxation under moral hazard," European Journal of Political Economy, Elsevier, vol. 15(1), pages 73-88, March.
    2. Anthony Heyes, 1996. "Optimal taxation of flow pollutants when firms may also inflict catastrophic environmental damage," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 7(1), pages 1-14, January.
    3. Katrin Millock & David Zilberman, 2006. "Collective penalties and inducement of self-reporting," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00118778, HAL.
    4. Jakob Eberl & Darko Jus, 2012. "Evaluating policies to attain the optimal exposure to nuclear risk," RSCAS Working Papers 2012/50, European University Institute.
    5. Grajzl, Peter & Baniak, Andrzej, 2009. "Industry self-regulation, subversion of public institutions, and social control of torts," International Review of Law and Economics, Elsevier, vol. 29(4), pages 360-374, December.
    6. Laffont, Jean-Jacques, 1995. "Regulation, moral hazard and insurance of environmental risks," Journal of Public Economics, Elsevier, vol. 58(3), pages 319-336, November.
    7. Thomas Aronsson & Kenneth Backlund & Karl-Gustaf Löfgren, 1998. "Nuclear Power, Externalities and Non-Standard Pigouvian Taxes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(2), pages 177-195, March.
    8. repec:hal:journl:halshs-00118778 is not listed on IDEAS
    9. van 't Veld, Klaas & Hutchinson, Emma, 2009. "Excessive spending by firms to avoid accidents: Is it a concern in practice?," International Review of Law and Economics, Elsevier, vol. 29(4), pages 324-335, December.

    More about this item

    Keywords

    environment ; enterprises ; risk;

    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:hhs:osloec:1992_022. 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: (Mari Strønstad Øverås). General contact details of provider: http://edirc.repec.org/data/souiono.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.