We focus in this paper on the effects of court errors on the optimal sharing of liability between firms and financiers, as an environmental policy instrument. Using a structural model of the interactions between firms, financial institutions, governments and courts we show, through numerical...

We consider a model of polluting firms subject to tax on emissions, monitoring, and penalties in case of underreporting and which face a choice between a more expensive clean and a less expensive dirty technology. Moreover, emissions are subject to random events.We show that the optimal...

Project-based emissions trading schemes, like the Clean Development Mechanism, are particularly prone to problems of asymmetric information between project parties and the regulator. In this paper, we extend the general framework on incomplete enforcement of policy instruments to reflect the...

We consider a model of moral hazard with limited liability of the agent and effort that is two-dimensional. One dimension of the agent's effort is observable and the other is not. The principal can thusmake the contract conditional not only on outcome but also on observable effort. The...

We compare the performance of liability rules for managing environmental disasters when third parties are harmed and cannot always be compensated. A firm can invest in safety to reduce the likelihood of accidents. The firm's investment is unobservable to authorities. Externality and asymmetric...

We compare the performance of liability rules for managing environmental disasters when third parties are harmed and cannot always be compensated. A firm can invest in safety to reduce the likelihood of accidents. The firm's investment is unobservable to authorities. Externality and asymmetric...

This paper analyses the welfare effects of price restrictions on private contracting in a world where agents have a limited cognitive ability. People compute the costs and benefits of entering a transaction with an error. The government knows the distribution of true costs and benefits as well...

Private firms often withhold information or contest scientific knowledge when public revelation could lead to costly regulations or liability. This concealment leads to negative externalities and public harm. But what if private firms' superior knowledge and self-interest could be harnessed to...

We analyze a model where firms chose a production technology which, together with some random event, determines the final emission level. We consider the coexistence of two alternative technologies: a "clean" technology, and a "dirty" technology. The environmental regulation is based on taxes...

In a market where firms with different characteristics decide upon both the level of emissions and their reports, we study the optimal audit policy for an enforcement agency whose objective is to minimize the level of emissions. We show that it is optimal to devote the resources primarily to the...