Risk-sharing agreements to cover environmental damage: theory and practice

Jing Liu () and Michael Faure ()
Additional contact information
Jing Liu: Wuhan University
Michael Faure: Maastricht University/Erasmus University Rotterdam

International Environmental Agreements: Politics, Law and Economics, 2018, vol. 18, issue 2, No 6, 255-273

Abstract: Abstract Mordernization has witnessed increasingly new industrial sectors which have the potential to create environmental disasters. The insolvency of risk creators in case of such disasters may lead to insufficient compensation as well as to a dilution of preventive incentives. Insurance is a traditional instrument to address these problems, but is subject to limitations such as the lack of information by the insurers on the risk and limited insurance capacity. The risk-sharing agreement is an alternative which is widely used in high-risk sectors but it received relative little attention in academic literature. This paper analyses the potential of risk-sharing agreements in minimizing total social costs of environmental harmful activities, in comparison with insurance. The comparison shows the advantage of risk-sharing agreements in terms of less demanding information requirements, allowing for mutual monitoring and the potential to reduce administrative costs. However, the analysis also shows that a few conditions need to be met for such advantages to be materialized. This paper then discusses a typology of various risk-sharing agreements and illustrates the different categories with examples from the maritime and nuclear sectors. Based on these experiences, this paper explores the possibilities to expand risk-sharing agreements to other policy areas where environmental risks may emerge.

Keywords: Risk-sharing agreements; Insurance; Oil pollution; Nuclear damage (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.com/10.1007/s10784-018-9386-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
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:spr:ieaple:v:18:y:2018:i:2:d:10.1007_s10784-018-9386-0

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/10784

DOI: 10.1007/s10784-018-9386-0

Access Statistics for this article

International Environmental Agreements: Politics, Law and Economics is currently edited by Joyeeta Gupta

More articles in International Environmental Agreements: Politics, Law and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().