Risk-sharing agreements to cover environmental damage: theory and practice

Jing Liu*, Michael Faure

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

158 Downloads (Pure)


Mordernization has witnessed increasingly new industrial sectors which have
the potential to create environmental disasters. The insolvency of risk creators in case of such disasters may lead to insufficient compensation as well as to a dilution of preventive incentives. Insurance is a traditional instrument to address these problems, but is subject to limitations such as the lack of information by the insurers on the risk and limited insurance capacity. The risk-sharing agreement is an alternative which is widely used in high-risk sectors but it received relative little attention in academic literature. This paper analyses
the potential of risk-sharing agreements in minimizing total social costs of environmental harmful activities, in comparison with insurance. The comparison shows the advantage of risk-sharing agreements in terms of less demanding information requirements, allowing for mutual monitoring and the potential to reduce administrative costs. However, the analysis also shows that a few conditions need to be met for such advantages to be materialized.
This paper then discusses a typology of various risk-sharing agreements and illustrates the different categories with examples from the maritime and nuclear sectors. Based on these experiences, this paper explores the possibilities to expand risk-sharing agreements to other policy areas where environmental risks may emerge.
Original languageEnglish
Pages (from-to)255-273
Number of pages19
JournalInternational Environmental Agreements-Politics Law and Economics
Issue number2
Publication statusPublished - Apr 2018


  • Risk-sharing agreements
  • Insurance
  • Oil pollution
  • Nuclear damage
  • Insurance

Cite this