The Efficient Liability Sharing Factor for Environmental Disasters: Lessons for Optimal Insurance Regulation

30 Pages Posted: 29 May 2008

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: January 1, 2008

Abstract

Using a structural model of the interactions between governments, firms and insurance companies, we characterise the distortions in environmental liability sharing between firms and insurance companies that the imperfect implementation of government policies implies. These distortions stem from three factors: the presence of moral hazard, the non congruence between firms/insurers objectives and social welfare, and the courts' imperfect assessment of safety care levels exerted by firms. We characterize cases where the efficient liability sharing factor is above or below its full information perfect implementation level. We derive comparative statics results indicating how sensitive the liability sharing factor is to changes in parameters (parameters that underlie the firm profit level and volatility, the cost of safety care, the monitoring cost, the social cost of public funds, the effectiveness of care in reducing the probability of accident) that are relevant for the characterization of optimal policies (liability sharing, safety care standards) toward environmental protection or the prevention of industrial accidents. We derive policy implications regarding environmental disaster insurance policies.

Keywords: Liability sharing, environmental insurance, safety care, moral hazard, principal-agent

JEL Classification: D82, G32, K13, K32, Q28

Suggested Citation

Boyer, Marcel and Porrini, Donatella, The Efficient Liability Sharing Factor for Environmental Disasters: Lessons for Optimal Insurance Regulation (January 1, 2008). CIRANO - Scientific Publications Paper No. 2008s-03, Available at SSRN: https://ssrn.com/abstract=1138383 or http://dx.doi.org/10.2139/ssrn.1138383

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
120
Abstract Views
735
rank
274,988
PlumX Metrics