Comments on paper by Timothy Swanson and Robin Mason

Date15 August 2002
DOIhttps://doi.org/10.1016/S0193-5895(02)20020-2
Pages413-415
Publication Date15 August 2002
AuthorAnthony Heyes
COMMENTS ON PAPER BY
TIMOTHY SWANSON AND
ROBIN MASON
Anthony Heyes
It is well understood that most of the optimistic predictions about the ability of
liability-based regimes to solve environmental problems falter when firms may
- at the critical moment - be 'judgement proof'. As such, the potential for
judgement proofness - the inability of a firm to pay, either in part or in whole,
environmental damages imposed by it - is something that economists need to
take seriously when thinking about legal and regulatory design. Tim
Swanson
and Robin Mason contribute substantially to this thinking in the current paper.
The authors adopt the memorable terminology of Akerlof and Romer's model
of 'looting' society. They seek to characterise the circumstances in which firms
may use antisocially low environmental standards to 'loot' society.
A firm can loot by operating in a way that generates future environmental
risks, then either exiting the scene altogether or else restructuring in such a way
that when the damage come to light their assets have been structured in such
a way that there's little left to be seized. An interesting central tenet of this
paper is that firms will rearrange their financial assets in such a way as to
make
themselves judgement proof. This is in contrast to most contributors (including
Shavell's original analysis) in which the seizable assets of the firm are assumed
to be exogenously determined - albeit too small to cover some liability
scenarios. Ringleb and Wiggins, in a well-known paper in the
Journal of
Political Economy
in 1990 made the same suggestion - and provided compelling
empirical evidence of what they referred to as 'strategic subsidiarisation'
in
An Introduction to the Law and Economics of Environmental Policy: Issues in Institutional
Design, Volume 20, pages 413-415.
© 2002 Published by Elsevier Science Ltd.
ISBN: 0-7623-0888-5
413

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