IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Bargaining power and the impact of lender liability for environmental damages

Listed author(s):
  • Balkenborg, D.

Should lenders be made liable for environmental damages caused by their customers? In a recent paper Pitchford studied the case where the customer is a wealth-constrained manager-owned firm. He argued convincingly that a joint liability of lender and firm may reduce the firm's incentive to prevent an environmental damage and may therefore be socially harmful. However, his argument hinges on the assumption that the lender has no bargaining power and makes 0-profits in a contract. In this paper we study all possible optimal contracts between the borrower and the lender. In particular we study the case where the lender has all the bargaining power. We use the weighted Nash-bargaining solution to handle both cases in a unified framework. The results for the case where the lender has a high bargaining power differ substantially from Pitchford's findings. Then a joint liability rule is socially preferable to single liability of the firm. In fact, often it is optimal to require a liability above the actual costs of a damage or to set it so high that it extracts all potential profits from the project

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" 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.

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 9709.

in new window

Date of creation: 01 Jan 1997
Handle: RePEc:stn:sotoec:9709
Contact details of provider: Postal:
Highfield, Southampton SO17 1BJ

Phone: (+44) 23 80592537
Fax: (+44) 23 80593858
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:stn:sotoec:9709. 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: (Chris Thorn)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.