Lender Liability and Cleanup Procudure: A Comparison

Mami Kobayashi and Hiroshi Osano
Additional contact information
Mami Kobayashi: Graduate School of Economicns, Kyoto University

No 561, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: There are several judicial cases under the US environmental law, in which a lending bank is liable for cleaning up environmentally hazardous materials generated by its borrowing firm. Such a liability rule, so-called lender liability, is applied to a lending bank which has been actively involved in the management of the firm. We first show that the application of lender liability does not necessarily lead to the first-best allocation if the cleanup cost per material depends on an agent who conducts the cleanup. This particularly holds true if the cleanup cost to the entrepreneur is the smallest. We then show that lender liability can lead to the first-best allocation if the bank captures the firm's control right before the environmental agency intervenes.

Keywords: lender liability; cleanup procudure; environmental law. (search for similar items in EconPapers)
JEL-codes: G33 K32 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2002-12
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:kyo:wpaper:561

Access Statistics for this paper

More papers in KIER Working Papers from Kyoto University, Institute of Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Makoto Watanabe ().