Efficiency of Liability-Sharing Rules: An Experimental Case

Julien Jacob, Eve-Angeline Lambert and Serge Garcia

Journal of Institutional and Theoretical Economics (JITE), 2022, vol. 178, issue 1, 1-42

Abstract: We investigate the relative performance of two liability-sharing rules for managing harms that are caused jointly by two firms. The firms can make investments to reduce the magnitude of the harm, but they face a limited solvency that can prevent them from paying for their share. We derive theoretical predictions, and compare them with observations made from a lab experiment. We show that insolvency leads to underinvestment, and that the relative performance of each rule depends on the relative degree of solvency of firms. From a social perspective, these results suggest that the liability-sharing rule should depend on the level of capitalization of firms.

Keywords: environmental regulation; liability-sharing rules; multiple tortfeasors; firms' insolvency (search for similar items in EconPapers)
JEL-codes: K13 K32 Q53 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Working Paper: Efficiency of Liability-Sharing Rules: An Experimental Case (2022)
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DOI: 10.1628/jite-2022-0001

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