Risky Activities and Strict Liability Rules: Delegating Safety

This paper studies the delegation of activities that pose serious risks to health and the environment in an economy regulated by strict liability schemes. Strict liability induces judgment-proof possibilities. Two civil liability regimes are then compared: a strict liability scheme and a capped strict liability one. The argument is led under a twofold asymmetric information assumption between the principal and the agent: the efficiency level in effort for safety and the agent’s level of wealth. The paper shows that standard strict liability under information asymmetries deters the efficient agent to compete and favors adverse selection. Then, under conditions, a capped strict liability regime is a better regime than a standard strict liability one because it induces the efficient agent to supply the level of safety effort equivalent to the first best solution. The counterpart is the perception of an informational rent by the efficient agent. At the optimum, this rent is minimized by the efficient contract supplied by the principal.Environment, Strict Liability, Ex-Ante Regulation, Ex-Post Liability, Judgment-Proof, Environment Law, CERCLA, Environmental Liability

The Equivalence of Strict Liability and Negligence Rule: A « Trompe l'œil » Perspective

This paper analyzes the difficulties of comparing the respective effectiveness of two among the most important liability regimes in tort law: rule of negligence and strict liability. Starting from the standard Shavellian unilateral accident scheme, I show that matching up liability regime on their capacity to provide the highest level of safety is ineffective. This demonstration lies on two components. The first one gathers some results drawn from literature that introduces uncertainty. The second one takes into consideration the beliefs of agents and their aversion to ambiguity. The model applies uncertainty to the level of maximum damage. This demonstration reinforces the previous result. Hence, both regimes apply on specific tort question and comparing their individual efficiency needs to call for other components as the transaction costs associated to the burden of evidence, the fairness between victims and injurers, etc.Strict Liability, Negligence Rule, Ambiguity Theory, Uncertainty, Accident Model

Hazardous Activities and Civil Strict Liability: The Regulator’s Dilemma

This paper addresses the conditions for setting up strict civil liability schemes. For that it compares the social efficiency of two main civil liability regimes usually enforced to protect the environment: the strict liability regime and the “capped strict liability scheme”. First, it shows that the regulator faces an effective dilemma when he has to enforce one of these schemes. This because the social cost of a severe harm (and the associated optimum care effort) is determined independently of any liability regime. This independency has economic consequences. First, victims and polluters pit one against another about the liability regime that the government should enforce. Hence, financially constrained polluters prefer the ceiling of responsibilities while victims wish to extend the amount of redress under a “standard” strict liability. Economic criteria for enforcing a regime rather than another one are lacking. Second, the paper shows that implementing civil strict liability rules may be done by setting up care standards as for instance in the nuclear or the maritime sectors and demanding to the injurers to comply with them. We show that this goal can be achieved by resorting to some friendly monitoring corresponding to frequent random controls with low fines rather than few controls that should involve heavy fines.Environment, Strict Liability, Ex-Ante Regulation, Ex-Post Liability, Judgment-Proof, Environment Law, CERCLA, Environmental Liability

Civil Liability, Safety and Nuclear Parks: Is Concentrated Management Better?

Ultra-hazardous risky activities as nuclear industry cannot be considered as “normal industries” i.e. industries without abnormal environmental and health risks. Consequently, the industrial organization of these specific sectors is of the utmost importance. This paper aims at studying this question. We focus on the associated costs of prevention and civil liability. We analyze how civil liability rules may contribute to extend or to discourage the expansion of nuclear parks to new operators. The paper compares the consequences of extending the management of nuclear stations to several independent operators. This question can apply to the unification process of the European electricity market in which several public and private nuclear power operators are running. The paper shows that the choice between either a monopolistic scheme (one operator managing several plants) or a decentralized one (one operator by station) depends on the condition of application of the legal civil liability regime and on the strength of the safety control exerted by the Nuclear Regulatory Authorities. It is shown that when the control is high, then the safety costs generated by the monopolistic organization are less than the same costs of a decentralized one. However, conditions on the insurance policy can mitigate this result.Strict Liability, Electric Energy, Nuclear Plants

Water Management in France: Delegation and Irreversibility

The problem that we address in this paper stems from the trend to delegation in the water management field. It refers to the municipality’s negotiating disadvantage in the face of cartelized water management firms that makes delegation, once undertaken, virtually irreversible. We show why the characteristics of the delegation auction render is useless as a tool for collective welfare maximization. We also show that the remaining tool for achieving collective welfare maximization, i.e. the municipality’s right to revoke delegation and return to direct management, is also ineffective due to a lack of credibility that is essentially financial in nature. Thus, if the credibility of revocation could be restored, the municipality’s bargaining power could also be restored. Using standard methods of stochastic calculus, we model the municipality’s right of revocation as a call option held by the municipality. We show that the key variable for the value of this option, and thus for the municipality’s position, is the exercise price, which is partly determined by objective economic criteria and partly by legal and institutional conventions. We show that community welfare maximisation occurs at the point where the exercise price is determined exclusively by objective economic criteria. Since the delegated firm as a simple agent has the right to abrogate the contract if delegation becomes unprofitable, we then model this right as a put option held by the firm. Its value also depends to a large extent on the exercise price, which is partly determined by objective economic criteria and partly by legal and institutional conventions. Combining the exercise points of the two options enables us to determine the price-profit interval over which delegation will be acceptable to both parties. We conclude that the optimal interval will be the one where the exercise prices are determined entirely by objective economic criteria.Water management; Delegation; Insurance mechanisms; Technological Changes; Real Options

Croissance soutenable et environnement : les enjeux des politiques économiques

L’objet de ce papier est d’étudier les politiques économiques environnementales de deux des principales représentations théoriques de la croissance soutenable : le courant « néoclassique » et le courant évolutionniste. Malgré des différences analytiques notables, on fait apparaître que l’un et l’autre des courants ne peuvent spécifier de règles d’incitations compatibles avec les plans micro-économiques des agents. Les recherches doivent alors s’orienter vers la définition de procédures qui permettent une telle articulation.The aim of this paper is to study the environmental economic policy of the two main theoretical representations of sustainable growth: the so-called "neoclassical" trend and the evolutionary trend. In spite of noteworthy analytical differences, we make clear that both trends cannot specify incitative rules compatible with the agents micro-economic programs. So, the researchs have to adjust toward the definition of proceedings which allow such an articulation

Croissance soutenable et environnement : les enjeux des politiques économiques

The aim of this paper is to study the environmental economic policy of the two main theoretical representations of sustainable growth: the so-called "neoclassical" trend and the evolutionary trend. In spite of noteworthy analytical differences, we make clear that both trends cannot specify incitative rules compatible with the agents micro-economic programs. So, the researchs have to adjust toward the definition of proceedings which allow such an articulation. L’objet de ce papier est d’étudier les politiques économiques environnementales de deux des principales représentations théoriques de la croissance soutenable : le courant « néoclassique » et le courant évolutionniste. Malgré des différences analytiques notables, on fait apparaître que l’un et l’autre des courants ne peuvent spécifier de règles d’incitations compatibles avec les plans micro-économiques des agents. Les recherches doivent alors s’orienter vers la définition de procédures qui permettent une telle articulation.

The unilateral accidenct model under a constrained Cournot-Nash duopoly

Summary: This paper extends the basic unilateral accident model to allow for Cournot competition. Two firms compete with production input and prevention as strategic variables under asymmetric capacity constraints. We find that liability regimes exert a crucial influence on the equilibrium price and outputs. Strict liability leads to higher output and higher risk compared to negligence. We also study the conditions under which both regimes converge. Key Words: Tort Law, Stric