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Journal Articles Journal of Institutional and Theoretical Economics Year : 2022

Efficiency of Liability-Sharing Rules: An Experimental Case

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Abstract

We investigate the relative performance of two liability-sharing rules for manag-ing harms that are caused jointly by two firms. The firms can make investments to reduce the magnitude of the harm, but they face a limited solvency that can prevent them from paying for their share. We derive theoretical predictions, and compare them with observations made from a lab experiment. We show that in-solvency leads to underinvestment, and that the relative performance of each rule depends on the relative degree of solvency of firms. From a social perspective, these results suggest that the liability-sharing rule should depend on the level of capitalization of firms.
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Dates and versions

hal-03831913 , version 1 (27-10-2022)

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Julien Jacob, Eve-Angéline Lambert, Serge Garcia. Efficiency of Liability-Sharing Rules: An Experimental Case. Journal of Institutional and Theoretical Economics, 2022, 178 (1), pp.1-42. ⟨10.1628/jite-2022-0001⟩. ⟨hal-03831913⟩
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