Efficiency of Liability-Sharing Rules: An Experimental Case

Julien Jacob (), Eve-Angeline Lambert and Serge Garcia
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Julien Jacob: BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: We investigate the relative performance of two liability-sharing rules for managing harms that are caused jointly by two firms. The firms can make investments to reduce the magnitude of the harm, but they face a limited solvency that can prevent them from paying for their share. We derive theoretical predictions, and compare them with observations made from a lab experiment. We show that insolvency leads to underinvestment, and that the relative performance of each rule depends on the relative degree of solvency of firms. From a social perspective, these results suggest that the liability-sharing rule should depend on the level of capitalization of firms.

Keywords: Environmental regulation; Liability-sharing rules; Multiple tortfeasors; Firms; Insolvency (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

Published in Journal of Institutional and Theoretical Economics, 2022, 178 (1), pp.1-42. ⟨10.1628/jite-2022-0001⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04180515

DOI: 10.1628/jite-2022-0001

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