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Safety Regulation and Monitor Liability

Feess, Eberhard and Hege, Ulrich (2002) Safety Regulation and Monitor Liability. Review of Economic Design, 7 (2). pp. 173-185.

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We propose a simple liability rule when several agents are jointly responsible for monitoring a risky economic activity or certifying its security. Examples are safety controls for drugs or technical systems, environmental liability, or air safety accidents. The agents have private knowledge of their monitoring or avoidance costs. We adopt a mechanism design approach to ensure optimal monitoring incentives. Our innovation is to focus on information that is available or can be proxied when harm has occurred and when typically regulators and/or courts deliberate over fines and damages. By contrast, earlier proposals require more estimations of hypothetical accident scenarios and their ex ante probabilities. We argue that our rule promises substantial savings in information costs for courts and regulators and excludes likely sources of errors.

Item Type: Article
Language: English
Date: 2002
Refereed: Yes
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 25 Apr 2016 08:56
Last Modified: 07 Mar 2018 13:23
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