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original papers: Safety regulation and monitor liability

Ulrich Hege () and Eberhard Feess ()

Review of Economic Design, 2002, vol. 7, issue 2, 173-185

Abstract: We propose a simple liability rule when several agents are jointly responsible for monitoring a risky economic activity or certifying its security. Examples are safety controls for drugs or technical systems, environmental liability, or air safety accidents. The agents have private knowledge of their monitoring or avoidance costs. We adopt a mechanism design approach to ensure optimal monitoring incentives. Our innovation is to focus on information that is available or can be proxied when harm has occurred and when typically regulators and/or courts deliberate over fines and damages. By contrast, earlier proposals require more estimations of hypothetical accident scenarios and their ex ante probabilities. We argue that our rule promises substantial savings in information costs for courts and regulators and excludes likely sources of errors.

Keywords: Safety regulation; multiple monitors; Bayesian mechanism (search for similar items in EconPapers)
JEL-codes: K13 H41 (search for similar items in EconPapers)
Date: 2002-10-09
Note: Received: 11 October 2000 / Accepted: 14 September 2001
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