Modeling the Choice between Regulation and Liability in Terms of Social Welfare

32 Pages Posted: 17 Dec 2003

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: December 2003

Abstract

Using a formal political economy model with asymmetric information, we illustrate the conditions under which an environmental protection system based on extending liability to private financiers is welfare superior, inferior or equivalent to a system based on an incentive regulatory scheme subject to capture by the regulatees. We explicitly consider the following factors: the cost of care and its efficiency in reducing the probability of an environmental accident, the social cost of public funds, the net profitability of the risky activities, the level of damages, and the regulatory capture bias. We characterize in such a parameter space the regions where one system dominates the other.

Keywords: Environment, extended liability, CERCLA, capture, choice of instruments

JEL Classification: D82, G32, K13, K32, L51

Suggested Citation

Boyer, Marcel and Porrini, Donatella, Modeling the Choice between Regulation and Liability in Terms of Social Welfare (December 2003). Available at SSRN: https://ssrn.com/abstract=372600 or http://dx.doi.org/10.2139/ssrn.372600

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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