The Regulator and the Judge: The Optimal Mix in The Control of Environmental Risk

Yolande Hiriart, David Martimort and Jerome Pouyet

Revue d'économie politique, 2008, vol. 118, issue 6, 941-967

Abstract: A firm engaged in activities which are environmentally risky has private informationboth on her choice of safety care and on the level of her assets. Public authorities havea stake in implementing a high level of prevention effort and in unveiling the true levelof assets for liability payments. We characterize the optimal second-best public policytowards risk prevention in this asymmetric information setup. This policy takes theform of monitoring both on safety care and on wealth, with probabilities of investigation supplemented with fines. The monitoring takes place both ex ante and ex post, i.e.,before or after an accident has taken place. We show that some sort of separationbetween the regulatory tasks and the legal intervention is called for : at the ex antestage, more resources should be allocated to the monitoring on ?technical? aspects ofthe underlying risk (i.e., the care exercised by the firm) than on ?financial? aspects (i.e.,the firm?s collectable wealth) ; at the ex post stage, monitoring should only concernfinancial aspects.

Keywords: Regulation; Liability; Environmental Risk; Asymmetric Information (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.cairn.info/load_pdf.php?ID_ARTICLE=REDP_186_0941 (application/pdf)
http://www.cairn.info/revue-d-economie-politique-2008-6-page-941.htm (text/html)
free

Related works:
Working Paper: The Regulator and the Judge: The Optimal Mix in the Control of Environmental Risk (2009)
Working Paper: The Regulator and the Judge: The Optimal Mix in The Control of Environmental Risk (2006)
Working Paper: The Regulator and the Judge: The Optimal Mix in TheControl of Environmental Risk (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cai:repdal:redp_186_0941

Access Statistics for this article

More articles in Revue d'économie politique from Dalloz
Bibliographic data for series maintained by Jean-Baptiste de Vathaire ().