Environmental Liability and Technology Choice: A Duopolistic Analysis

Abstract

This paper focuses both on the competition process and the firms' liability in environmental protection and the demonstration is made by comparing two models of safety investment. The first one shows sensitive players to their environmental liability: they seek to minimize the technologies accident risk while the second one corresponds to a much more standard choice. The players' main preoccupation is about their market share even if they care about liability. Then, from a very simple duopolistic competition model with strict liability, we show, first, that the way the firms assess the environmental question is not neutral on their expected performances. Second, that the associated level of technology to the liability concern - i.e. a high level of care or a low one - have a different impact on profitability. Consequently, the competitors' general attitude, their beliefs and the institutional rules have strong effects on the environmental investment assessments. More precisely, the enforcing rule the players will adopt will play directly on the performance, not only of one firm, but on the whole set of industrial firms.