Large-scale risks and technological change: What about limited liability?

Sandrine Spaeter and Julien Jacob

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: We consider a firm under strict liability that must choose between two risky technologies, one being safer but costlier than the other one. The total potential level of damage increases with the level of activity. We show that, under limited liability, technological change is welfare improving and leads to full risk internalization when the firms are sufficiently capitalized. Nevertheless, the percentage of firms adopting the safer technology and full risk internalization is higher under unlimited liability than under limited liability. We show how an adequate tax policy increases this percentage. We also determine the characteristics of a second-best tax policy.

Keywords: Technological risk; limited liability; incentives; technical choice; taxes. (search for similar items in EconPapers)
JEL-codes: D81 H23 K39 Q55 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ene and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Large-Scale Risks and Technological Change: What About Limited Liability? (2016)
Working Paper: Large-scale risks and technological change: What about limited liability? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2014-10

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