Prevention, Limited Liability and Market Structure

B. Coestier, Estelle Gozlan and Stéphan Marette ()

No 8531, 2002 International Congress, August 28-31, 2002, Zaragoza, Spain from European Association of Agricultural Economists

Abstract: Under a market setting, we analyse the impact of legal liability on prevention, taking into account the possible limited wealth of firms. We show that under strict liability, firms my choose ex ante not to be able to fully indemnify victims ex post: whatever the market structure, they may use limited liability strategically by investing in prevention in excess of what is socially optimal. The negligence rule prevents firms from over-investment. For high levels of damages, under both liability rules, firms exert an insufficient effort of prevention. A welfare analysis established that when the judgment proof problem is acute, the optimal public intervention ranges from banning the production to imposing the negligence rule.

Keywords: Marketing (search for similar items in EconPapers)
Pages: 22
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae02:8531

DOI: 10.22004/ag.econ.8531

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