Working Paper BETA #2016-30

Download working-paper

Title : Risk, Ambiguity and Efficient Liability Rules: An experiment.

Author(s) : Nicolas Lampach, Kene Boun My, Sandrine Spaeter

Abstract : We conduct experiments to study the incentive effects of strict liability by comparing both regimes, unlimited and limited liability in the domain of risk and ambiguity. We assume that the firm’s activities cause a risk of technological disaster and can invest in prevention to reduce the likelihood of accident. We assess Lampach and Spaeter’s theoretical predictions. We find on average high levels of investment under limited liability in the domain of risk, consistent with the theory, but lower level of investment in prevention in the domain of ambiguity. We do not find that subjects’ degree of optimism affect the decision choice albeit we demonstrate strong evidence in favor of inequity aversion, fairness and risk preferences.

Key-words : Strict liability; Technological disaster; Experiment; Risk; Ambiguity; Optimism.

JEL Classification : K13; C91; D81