タイトル：
“Collective Responsibility and Judgment-proof Problem”

Abstract:

We consider an economy where sufficiently large number of homogeneous firms are engaging in environmentally risky business. We assume that precaution to deter pollution conducted by firms is completely unobservable. It is assumed that pollution has a huge impact on the environment once it occurs and the polluting company cannot cover the damage because of asset constraint. In other words, each company is potentially judgment-proof firm. It is well known that it is difficult to attain the first best under both asymmetry of information and asset constraint or judgment proof problem. Our scheme involves both ex-ante compensation and ex-post collective penalty. We show that the proposed policy can attain the first best asymptotically. In addition, this policy does work even in the competitive insurance market. This finding may support the advantage of compulsory insurance liability over other policies.

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