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Title: Prevention, Limited Liability and Market Structure
Authors: Coestier, B.
Gozlan, Estelle
Marette, Stephan
Issue Date: 2002
Series/Report no.: Contributed Paper
Abstract: Under a market setting, we analyse the impact of legal liability on prevention, taking into account the possible limited wealth of firms. We show that under strict liability, firms my choose ex ante not to be able to fully indemnify victims ex post: whatever the market structure, they may use limited liability strategically by investing in prevention in excess of what is socially optimal. The negligence rule prevents firms from over-investment. For high levels of damages, under both liability rules, firms exert an insufficient effort of prevention. A welfare analysis established that when the judgment proof problem is acute, the optimal public intervention ranges from banning the production to imposing the negligence rule.
Institution/Association: European Association of Agricultural Economists>2002 International Congress, August 28-31, 2002, Zaragoza, Spain
Total Pages: 22
Language: English
Collections:2002 International Congress, August 28-31, 2002, Zaragoza, Spain

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