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Channel: AgEcon Search Collection: Volume 04, Number 3, 1987
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Risk-sharing and Liability in the Control of Stochastic Externalities

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Title: Risk-sharing and Liability in the Control of Stochastic Externalities

Authors: Segerson, Kathleen

Abstract: This paper analyzes alternative policies for controlling stochastic externalities, considering both the incentive and the risk-sharing effects of each. When polluter actions are unobservable so that regulation is not possible, alternative liability rules including zero, partial, and full liability are compared. When actions are observable, then regulation is possible, and the use of regulation is compared to the use of liability. The principal-agent paradigm provides the analytical approach used to determine the efficient policy choice. The effect of the availability of insurance is also addressed. This paper concludes with a discussion of the implications of the analysis for the control of stochastic marine pollution.

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