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Relative Performance of Liability Rules: Experimental Evidence

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Listed author(s):
  • Vera Angelova
  • Giuseppe Attanasi
  • Yolande Hiriart

Abstract

We compare the performance of liability rules for managing environmental disasters when third parties are harmed and cannot always be compensated. A firm can invest in safety to reduce the likelihood of accidents. The firm’s investment is unobservable to authorities. Externality and asymmetric information call for public intervention to define rules aimed at increasing prevention. We determine the investment in safety under No Liability, Strict Liability and Negligence, and compare it to the first best. Additionally, we investigate how the (dis)ability of the firm to fully cover potential damages affects the firm’s behavior. An experiment tests the theoretical predictions. In line with theory, Strict Liability and Negligence are equally effective; both perform better than No Liability; investment in safety is not sensitive to the ability of the firm to compensate potential victims. In contrast with theory, prevention rates absent liability are much higher and liability is much less effective than predicted.

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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2016-028.

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Length: 44 pages
Date of creation: Aug 2016
Handle: RePEc:hum:wpaper:sfb649dp2016-028
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Find related papers by JEL classification:
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
  • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
  • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
  • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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Cited by:

  1. Pierre Bentata, 2014. "Liability as a complement to environmental regulation: an empirical study of the French legal system," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 16(3), pages 201-228, July.
  2. Bentata Pierre, 2013. "Environmental Regulation and Civil Liability Under Causal Uncertainty: An Empirical Study of the French Legal System," Review of Law & Economics, De Gruyter, vol. 9(2), pages 239-263, October.
  3. Nicolas Lampach & Kene Boun My & Sandrine Spaeter, 2016. "Risk, Ambiguity and Efficient Liability Rules: An experiment," Working Papers of BETA 2016-30, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  4. Pierre Bentata & Karim Barkat, 2012. "Environmental Liability and Regulation: An Empirical Study of the French Institutional Division of Labour," CAE Working Papers 98, Aix-Marseille Université, CERGAM.
  5. Fluet, Claude & Galbiati, Rpbertp, 2016. "Lois et normes : les enseignements de l'économie comportementale," L'Actualité Economique, Société Canadienne de Science Economique, vol. 92(1-2), pages 191-215, Mars-Juin.
  6. Serge Garcia & Julien Jacob & Eve-Angéline Lambert, 2017. "Comparison of liability sharing rules for environmental damage: An experiment with different levels of solvency," Working Papers of BETA 2017-12, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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