Sharing Liability between Banks and Firms: The Case of Industrial Safety Risk

43 Pages Posted: 12 Nov 2008

See all articles by Marcel Boyer

Marcel Boyer

CIRANO, Université de Monréal

Donatella Porrini

University of Salento - Department of Economics and Mathematics and Statistics

Date Written: March 1, 2007

Abstract

We characterize the distortions in environmental liability sharing between firms and banks that the imperfect implementation of government policies implies. These distortions stem from three factors: the presence of moral hazard, the use of objective functions by firms and banks that differs from the social welfare function, and the difficulty for the court to assess the safety care level exerted by the firms. We characterize cases where the liability sharing factor is above or below its full information perfect implementation level. We derive comparative statics results indicating the sensitivity of the liability sharing factor to changes in some parameters relevant for characterizing the optimal policy toward environmental protection or the prevention of industrial accidents

Keywords: liability sharing, industrial/environmental liability, safety care, moral hazard, principal-agent

JEL Classification: D82, G32, K13, K32, Q28

Suggested Citation

Boyer, Marcel and Porrini, Donatella, Sharing Liability between Banks and Firms: The Case of Industrial Safety Risk (March 1, 2007). CIRANO - Scientific Publications No. 2007s-04, Available at SSRN: https://ssrn.com/abstract=1096345 or http://dx.doi.org/10.2139/ssrn.1096345

Marcel Boyer (Contact Author)

CIRANO, Université de Monréal ( email )

1400-1130 Sharbrooke St. West
Montreal, Quebec H3A 2M8
Canada
514 985-4000 (Phone)
514-985-4039 (Fax)

HOME PAGE: http://www.cirano.qc.ca/~boyerm

Donatella Porrini

University of Salento - Department of Economics and Mathematics and Statistics ( email )

Piazza Tancredi, n7
Lecce, 73100
Italy

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