Risk-sharing agreements to cover environmental damage: theory and practice
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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.
- Risk-sharing agreements, Insurance, Oil pollution, Nuclear damage, STORAGE, TORT LAW, SAFETY, Insurance, LIABILITY, SOCIETY, INSURANCE CLUBS