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Adverse selection, limited compensation, and the design of environmental liability insurance contract in the case of enterprise bankruptcy

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  • Ben‐jiang Ma
  • Jing‐yu Ye
  • Geng Liu
  • Yuan‐ji Huang

Abstract

In the case of incomplete environmental liability insurance, enterprises are likely to go bankrupt. Rational enterprises generally do not want to insure the environmental loss liability in case of bankruptcy even if they are compensated by insurance companies. This means that the premium calculated now is high, which may be the main reason for the current enterprises to cherish insurance. Based on this, a basic model of environmental liability insurance contract considering bankruptcy under ex ante asymmetric information is established. The model is improved by using the information screening combination tool, which further improves the efficiency of information screening.

Suggested Citation

  • Ben‐jiang Ma & Jing‐yu Ye & Geng Liu & Yuan‐ji Huang, 2020. "Adverse selection, limited compensation, and the design of environmental liability insurance contract in the case of enterprise bankruptcy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1327-1337, October.
    • Handle: RePEc:wly:mgtdec:v:41:y:2020:i:7:p:1327-1337
    DOI: 10.1002/mde.3178
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    References listed on IDEAS

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    Cited by:

    1. Lu, Juan & Li, He & Yang, Ran, 2024. "Effects of environmental liability insurance on illegal pollutant discharge of heavy polluting enterprises: Emission reduction incentives or pollution protector?," Socio-Economic Planning Sciences, Elsevier, vol. 92(C).
    2. Runze Yang & Ruigang Zhang, 2022. "Environmental Pollution Liability Insurance and Corporate Performance: Evidence from China in the Perspective of Green Development," IJERPH, MDPI, vol. 19(19), pages 1-18, September.

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