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Efficiency of sharing liability rules: An experimental case

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  • Serge Garcia
  • Julien Jacob
  • Eve-Angéline Lambert

Abstract

We experimentally investigate the relative performance of two liability sharing rules for managing environmental harms that are jointly caused by two firms which can make ex ante safety investments in order to reduce the magnitude of the harm. The investment levels are chosen non-cooperatively and assumed to be non-observable by the regulator. If one firm is unable to cover its part of the damages, third parties might not receive full compensation for their harm. Through an experiment, we analyze the investment choices under two widely used liability sharing rules and compare the decisions to theoretical predictions. In line with theory, we show that insolvency leads to under-investment. Moreover, we show that the relative performance of each rule depends on the firms’ relative degree of solvency. Our results indicate that the legislator should make the default liability sharing rule dependent upon the degree of capitalization of firms.

Suggested Citation

  • Serge Garcia & Julien Jacob & Eve-Angéline Lambert, 2021. "Efficiency of sharing liability rules: An experimental case," Working Papers of BETA 2021-07, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2021-07
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    References listed on IDEAS

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    Cited by:

    1. Julien Jacob & Eve-Angéline Lambert & Mathieu Lefebvre & Sarah Driessche, 2023. "Information disclosure under liability: an experiment on public bads," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 61(1), pages 155-197, July.
    2. Dylan Martin-Lapoirie, 2022. "Teamwork in health care and medical malpractice liability: an experimental investigation," European Journal of Law and Economics, Springer, vol. 54(2), pages 251-282, October.

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    More about this item

    Keywords

    Environmental Regulation; Liability Sharing Rules; Multiple Tortfeasors; Firms’ Insolvency.;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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