Adverse selection, limited compensation, and the design of environmental liability insurance contract in the case of enterprise bankruptcy

Ben‐jiang Ma, Jing‐yu Ye, Geng Liu and Yuan‐ji Huang

Managerial and Decision Economics, 2020, vol. 41, issue 7, 1327-1337

Abstract: In the case of incomplete environmental liability insurance, enterprises are likely to go bankrupt. Rational enterprises generally do not want to insure the environmental loss liability in case of bankruptcy even if they are compensated by insurance companies. This means that the premium calculated now is high, which may be the main reason for the current enterprises to cherish insurance. Based on this, a basic model of environmental liability insurance contract considering bankruptcy under ex ante asymmetric information is established. The model is improved by using the information screening combination tool, which further improves the efficiency of information screening.

Date: 2020
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https://doi.org/10.1002/mde.3178

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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:41:y:2020:i:7:p:1327-1337

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