Environmental Policy Based on Strict Liability: Implications of Uncertainty and Bankruptcy

Bruce A. Larson

Land Economics, 1996, vol. 72, issue 1, 33-42

Abstract: A firm-level model is developed to analyze the impacts of bankruptcy and uncertain firm wealth on incentives for safety under a strict liability rule. Future damages and wealth are uncertain, and a firm's income earning activities that possibly create damages are incorporated into the model. This analysis shows that firms do not always undertake more of a risky activity than is socially desirable. For the extremely hazardous industry case, larger firms always undertake less of a risky activity than smaller firms. For the cyclical industry case, larger firms do not always conduct less of a risky activity than smaller firms.

Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:uwp:landec:v:72:y:1996:i:1:p:33-42

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