Large-scale risks and technological change: What about limited liability?
We consider a firm that has to choose a technology to produce a given good. This technology drives a multiplicative large-scale risk of incident for Society: the total potential level of damage increases with the level of activity. Contrary to what is often argued in the literature, we show that limited liability can be more incentive for technical change than an unlimited liability rule, depending on the magnitude of the technological change and on the firm's size. In a second part of the paper, taxes are introduced. We show how manipulating the tax rate with respect to the technological choice made by the firm still enlarges the set of parameters that lead to technological change under a limited liability rule. Our normative results provide some arguments in favor of the limited liability rule, often considered as the main explanation of partial large-scale risk internalization by firms.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +33 3 68 85 20 69
Fax: +33 3 68 85 20 70
Web page: http://www.beta-umr7522.fr/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Magat, Wesley A., 1978. "Pollution control and technological advance: A dynamic model of the firm," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 1-25, March.
- Dionne, Georges & Spaeter, Sandrine, 2003.
"Environmental risk and extended liability: The case of green technologies,"
Journal of Public Economics,
Elsevier, vol. 87(5-6), pages 1025-1060, May.
- Dionne, G. & Spaeter, S., 1998. "Environmental Risk and Extended Liability: the Case of Green Technologies," Ecole des Hautes Etudes Commerciales de Montreal- 98-12, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
- Boyer, M. & Laffont, J.J., 1995.
"Environmental Risks and Bank Liability,"
Cahiers de recherche
9501, Universite de Montreal, Departement de sciences economiques.
- Boyer, M. & Laffont, J.J., 1995. "Environmental Risks and Bank Liability," Cahiers de recherche 9501, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Marcel Boyer & Jean-Jacques Laffont, 1994. "Environmental Risks and Bank Liability," CIRANO Working Papers 94s-22, CIRANO.
- Boyer, Marcel & Laffont, Jean-Jacques, 1994. "Environmental Risks and Bank Liability," IDEI Working Papers 45, Institut d'Économie Industrielle (IDEI), Toulouse.
- Boyd, James & Ingberman, Daniel E, 1994. "Noncompensatory Damages and Potential Insolvency," The Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 895-910, June.
- Requate, Till, 1998. "Incentives to innovate under emission taxes and tradeable permits," European Journal of Political Economy, Elsevier, vol. 14(1), pages 139-165, February.
- Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
- Parry, Ian W. H., 1995. "Optimal pollution taxes and endogenous technological progress," Resource and Energy Economics, Elsevier, vol. 17(1), pages 69-85, May.
- Hiriart, Yolande & Martimort, David, 2004.
"The Benefits of Extended Liability,"
IDEI Working Papers
334, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jun 2005.
- Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
- Fischer, Carolyn & Parry, Ian W. H. & Pizer, William A., 2003.
"Instrument choice for environmental protection when technological innovation is endogenous,"
Journal of Environmental Economics and Management,
Elsevier, vol. 45(3), pages 523-545, May.
- Parry, Ian & Pizer, William & Fischer, Carolyn, 1998. "Instrument Choice for Environmental Protection When Technological Innovation is Endogenous," Discussion Papers dp-99-04, Resources For the Future.
- T. Randolph Beard, 1990. "Bankruptcy and Care Choice," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 626-634, Winter.
When requesting a correction, please mention this item's handle: RePEc:ulp:sbbeta:2010-12. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.