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

23 Pages Posted: 12 Jul 2004

See all articles by Marcel Boyer

Marcel Boyer

CIRANO, Université de Monréal

Donatella Porrini

University of Salento - Department of Economics and Mathematics and Statistics

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.

JEL Classification: D82, K32

Suggested Citation

Boyer, Marcel and Porrini, Donatella, Modelling the Choice between Regulation and Liability in Terms of Social Welfare. Available at SSRN: https://ssrn.com/abstract=563585

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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