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Comparison of liability sharing rules for environmental damage: An experiment with different levels of solvency

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  • Serge Garcia
  • Julien Jacob
  • Eve-Angéline Lambert

Abstract

Civil liability is the legal requirement to compensate victims when damage is caused. When two firms jointly cause environmental damage, their liability depends on the applicable liability rule and on the solvency level of each firm. Under non-joint liability, each injurer is liable for part of the damage up to its financial capacity. Under joint and several liability, if damages cannot be recovered from one in jurer for insolvency reasons, they are borne by the other one to the extent that it is solvent. We theoretically and experimentally investigate the impact of these two liability rules in terms of incentives to care, varying according to the degree of (in)solvency of each firm. We show that when there is (at least) one insolvent firm, non-joint liability leads to higher social welfare than joint and several liability, whereas the latter should be preferred in the presence of solvent firms only.

Suggested Citation

  • 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.
  • Handle: RePEc:ulp:sbbeta:2017-12
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    References listed on IDEAS

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    More about this item

    Keywords

    Environmental damage; Liability Sharing; Multiple Tortfeasors; Abatement Efforts; Insolvency.;

    JEL classification:

    • 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
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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