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Discussion Paper Details

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Title: The Public Management of Environmental Risk: Separating Ex Ante and Ex Post Monitors

Author(s): Yolande Hiriart, David Martimort and Jérôme Pouyet

Publication Date: April 2005

Keyword(s): environmental risk, exante and ex post investigations, integration and separation, liability and regulation

Programme Area(s): Industrial Organization

Abstract: When firms undertake activities which are environmentally risky, the divergence between social and private incentives to exert safety care requires public intervention. This control occurs both through ex ante regulation and ex post legal investigation. We delineate the respective scopes of those two kinds of monitoring when regulators and judges may not be benevolent. Separation between the ex ante and the ex post monitors of the firm helps to prevent capture. The likelihood of both ex ante and ex post inspections is higher under separation than under integration. This provides a rationale for the widespread institutional trend that has led to the separation of ex ante regulation from ex post prosecution. The robustness of this result is investigated in various extensions. Only when collusion is self-enforcing might it be possible that integration dominates separation.

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Bibliographic Reference

Hiriart, Y, Martimort, D and Pouyet, J. 2005. 'The Public Management of Environmental Risk: Separating Ex Ante and Ex Post Monitors'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4992