Sharing Liability Between Banks and Firms: The Case of Industrial Safety Risk

Marcel Boyer and Donatella Porrini

CIRANO Working Papers from CIRANO

Abstract: We characterize the distortions in environmental liability sharing between firms and banks that the imperfect implementation of government policies implies. These distortions stem from three factors: the presence of moral hazard, the use of objective functions by firms and banks that differs from the social welfare function, and the difficulty for the court to assess the safety care level exerted by the firms. We characterize cases where the liability sharing factor is above or below its full information perfect implementation level. We derive comparative statics results indicating the sensitivity of the liability sharing factor to changes in some parameters relevant for characterizing the optimal policy toward environmental protection or the prevention of industrial accidents. Nous caractérisons les distortions dans le partage de responsabilités entre banques et firmes qu'implique l'implémentation imparfaite des politiques gouvernementales. Ces distortions découlent de la présence de risque moral et de sélection adverse, de l'utilisation de fonctions-objectifs par les firmes et les banques diffèrentes de la fonction de bien-être social, et de la difficulté des cours de justice d'évaluer le niveau de précaution exercé par les firmes. Nous montrons l'existence de divers cas où le partage de responsabilités est supérieur ou inférieur au partage optimal en information et implémentation parfaites. Nous obtenons des résultats de statique comparée illustrant la sensibilité du partage des responsabilités aux paramètres pertinents à la détermination d'une politique optimale de protection environnementale ou de prévention d'accidents industriels.

Keywords: liability sharing; industrial/environmental liability; safety care; moral hazard; principal-agent; partage de responsabilités; environnement; prévention; risque moral; sélection adverse; principal-agent (search for similar items in EconPapers)
JEL-codes: D82 G32 K13 K32 Q28 (search for similar items in EconPapers)
Date: 2007-03-01
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-ias and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2007s-04

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