2002 World Congress of Environmental and Resource Economists

Under a market setting, we analyze the impact of legal liability on prevention taking into account the possible limited wealth of firms. We show that under strict liability, firms may choose ex ante not to be able to fully indemnify victims ex post: whatever the market structure, they may use limited liability strategically by investing in prevention in excess of what is socially optimal. The negligence rule prevents firms from over investment. For high levels of damages, under both liability rules firms exert an insufficient effort of prevention. A welfare analysis establishes that when the judgment proof problem is acute, the optimal public intervention ranges from banning the production to imposing the negligence rule.



	Paper Title:	Prevention, Limited Liability And Market Structure
	Presenting Author:	Benedicte Coestier (UMR INRA INAPG)
	Coauthor 1:	Estelle Gozlan
	Coauthor 2:	Stephan Marette
	Coauthor 3:
	Abstract:	Under a market setting, we analyze the impact of legal liability on prevention taking into account the possible limited wealth of firms. We show that under strict liability, firms may choose ex ante not to be able to fully indemnify victims ex post: whatever the market structure, they may use limited liability strategically by investing in prevention in excess of what is socially optimal. The negligence rule prevents firms from over investment. For high levels of damages, under both liability rules firms exert an insufficient effort of prevention. A welfare analysis establishes that when the judgment proof problem is acute, the optimal public intervention ranges from banning the production to imposing the negligence rule.
	Link to paper:	http://weber.ucsd.edu/~carsonvs/papers/633.pdf

	Session / Day / Time	5I / Tuesday / 8:00 - 10:00 am

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