Top

Social Choice and Welfare

Published in:

27-12-2022 | Original Paper

Information disclosure under liability: an experiment on public bads

Authors: Julien Jacob, Eve-Angéline Lambert, Mathieu Lefebvre, Sarah Van Driessche

Published in: Social Choice and Welfare | Issue 1/2023

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

We experimentally investigate the impact of information disclosure on managing common harms that are caused jointly by a group of liable agents. Subjects interact in a public bad setting and must choose ex ante how much to contribute in order to reduce the probability of causing a common damage. If a damage occurs, subjects bear a part of the loss according to the liability-sharing rule in force. We consider two existing rules: a per capita rule and a proportional rule. Our aim is to analyze the relative impact of information disclosure under each rule. We show that information disclosure increases contributions only under a per capita rule. This result challenges the classical results regarding the positive effects of information disclosure, since we show that this impact may depend upon the legal context. We also show that while a proportional rule leads to higher contributions than a per capita one, the positive effect of disclosure on a per capita rule makes it as efficient as a proportional rule without information disclosure.

previous article Families of abstract decision problems whose admissible sets intersect in a singleton

next article Polarization and conflict among groups with heterogeneous members

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Available only for authorised users

The 2004/35/CE Directive on environmental liability stipulates that “Member States may establish national rules covering cost allocation in cases of multiple party causation. Member States may take into account, in particular, the specific situation of users of products who might not be held responsible for environmental damage in the same conditions as those producing such products. In this case, apportionment of liability should be determined in accordance with national law.” Hence, Germany and France have both chosen to enforce a per capita sharing when several agents are responsible for a common harm (see German Federal Ministry of Justice (2022) paragraph 426 for the case of Germany, and Hocquet-Berg (2017) for the case of France).

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), in its Section 113(f), allows for proportional liability in case of indivisible harm (see Kornhauser and Revesz 1989; Pinkowski 1996; Ferrey 2009). An example is the Colorado vs. ASARCO, Inc case in 1985.

Note here that if each tortfeasor invests the same amount, then the two rules are obviously equivalent.

Note that the terms “recognition mechanism” and “naming mechanism” could also have been used instead of “identification mechanism”.

Another example of such investments is provided by Foulon et al. (2002) as regards the pulp and paper industry in British Columbia (Canada): since 1990, plants are required to use a secondary wastewater treatment process if they are be allowed to operate.

As to the identification of the lowest contributors, in practice information is gathered about all contributions, but only the lowest contributors are made publicly identified. Considering again the example of water pollution in the UK, the Environment Agency yearly conducts a global assessment of pollution from water companies and publishes a ranking of them as regards their environmental performance. See Environment Agency of United Kingdom (2022) for an example.

Note also that some papers have investigated the channels through which information disclosure leads firms to reduce emissions. Konar and Cohen (1997) notably identified that a stock price decline due to information disclosure would lead firms to subsequently change their environmental behavior. The impact of such disclosure on firms’ financial performance has been analyzed in other papers (see e.g., Capelle-Blancard and Laguna 2010; Gonenc and Scholtens 2017).

Each subject can benefit from a reduced risk even if they did not contribute to it (non-excludable), and the fact that a subject enjoys that reduced risk (of having to pay for liability in case of harm) does not prevent another subject enjoying it as well (non-rivalrous). Thus, the two properties of a public good are satisfied in the case we consider.

Under severe law, subjects always have to compensate perfectly for any harm caused to others, i.e., the probability of detection is assumed to be 100%; under mild law, the probability of detection is 50% only.

In Andreoni and Petrie (2004), the composition of the groups changes every 8 periods, for a total of 40 periods.

We decided to give subjects 19 ECUs rather than 20 ECUs in order to avoid decisions based on heuristics such as focal points where subjects choose a given proportion (one quarter, one half, and so on) of their endowment (on this point, see notably Cohen et al. 1996).

The value of \(\alpha\) is not directly related to the value of the endowment (of 19 ECUS) but results from the following trade-off: a low value of \(\alpha\) leads to a high marginal benefit from investing, which may lead to a corner solution (\(x_{i}=19\)). Conversely, a high value of \(\alpha\) leads to a low marginal benefit from investing, which reduces both the levels of the equilibrium values of x (in each of the four treatments we consider, see later) but also the difference between these equilibrium values, which could cause difficulties for the comparison between treatments in the empirical analysis. Overall, the value of 0.19 is, in our setup, the value which makes the best trade-off between the necessity to have interior solutions, and sufficiently different equilibrium values.

Note that the possibility of reaching a zero probability when all the four agents make a maximum contribution of 19 has no impact on the equilibrium values of contribution (see later). Moreover, in the data, we can see that the perspective of escaping risk has not been seen as an attractive one (see Table 3 below).

To avoid the subjects needing mathematical skills in order to understand the function of probability, they were not given the functional form of that function but a table of all probabilities instead. See the instructions in Appendix A.1.

A stands for anonymous.

ID stands for information disclosure.

As pointed out by Samek and Sheremeta (2014), photos capture and preserve the appearance of the person but do not allow for communication, which may confound the effects of identification alone. In addition to the photo, we therefore included first names.

We follow Gächter and Renner (2010) for belief elicitation. Subjects earned 6 ECUs if they correctly (± 0.5 ECUs) predicted the average contribution of the three other members and 3 ECUs divided by the (absolute) estimation error otherwise.

The model could fit with monetary gains/losses, due to a variation in the firm’s brand image or reputation. However, our experimental design does not include the possibility for other pecuniary losses other than those due to liability in case of a loss occurring.

Many SMEs are managed by owner-managers, who have at least a personal responsibility for the decisions they make for their company. They are personally identified, and are personally impacted by what happens to their company. Decisions are thus closed to those which are made for an individual purpose. As an illustration, Afsah et al. 1996 show that firms are sensitive to the opinion of local communities. We can note that SMEs, like larger firms, may also be subject to reputational monetary gains or losses, which are not captured by our experiment. As a consequence, the impact of this additional benefit/cost on SMEs could be higher than the one we measure in this experiment.

Deffains and Fluet (2013) use the word (dis)esteem which holds through the others’ view of the agent’s ability to care about, and to contribute in reducing, the expected common loss. This agent’s concern about the loss could be included in the model, through an additional cost in (3) such as: \(-p(x_{i}) \theta H\), with \(\theta\) the degree of the agent’s concern for the loss (with \(\theta \ge 0\)). (Dis)esteem is based on the underlying rationale that others cannot observe \(\theta\), but they try to infer its value, especially through the information disclosed by the identification mechanism. So, esteem (resp. disesteem) plays a role when others think that we have a high (resp. low) value of \(\theta\). Hence, \(\theta\) is only an instrumental variable, and to ease the exposition we choose not to introduce it.

For simplicity, we only consider the case where no identification mechanism holds. However, we have to note that \(\beta _{i}=0\) also captures the case where an identification mechanism holds but the agent is not sensitive to their social image. But it is not of particular relevance to distinguish these two cases for our analysis.

From a formal point of view, this Prediction is obtained from the comparison between Eqs. (4) and (8) on the one hand, and Eqs. (6) and (9) on the other hand. From the former comparison, we can deduce the impact of social image on the incentives to contribute in case of per capita sharing. From the later comparison, we can deduce the impact in case of proportional sharing. In both cases, the additional incentives (provided by the identification mechanism) depend on \(\beta _i\), \(q^{r}(.)\), and \(\Delta ^{r}\). As a result, for \(\beta _i\) and \(q^{r}(.)\) given, \(\Delta ^{PC}>\Delta ^{PR}\) leads to Prediction 3. But this can only be a conjecture, which we justify by the above argumentation.

Unless specifically noted, we report the significance levels of a two-sided Mann-Whitney rank-sum test taking individual averages as the unit of observation. Given the sample size of 60 subjects per treatment and the averages and standard deviations presented in Table 3, we must acknowledge that the statistical power of two samples comparisons can be low and is around 57% depending on the test.

See Appendix A.3 for the distributions of contributions per treatment.

The p value is based on the difference between the average contribution of the first four periods in each group and the average contribution of the last four periods in each group by individuals.

All results are robust to the use of other specifications such as OLS or individual clustered standard errors and whether or not socio-demographic variables are included.

We used this lagged variable rather than the subject’s belief about the average contribution of the other group members since we obtain the same results no matter which variable is employed, but the effects are more statistically significant with the former.

See column (3) of Table 8 in Appendix A.4.

Note that we used two different variables to account for subjects’ preferences toward risk (i.e., Risk-seeking and Gamble). There is no problem of correlation between these two variables as is often the case when risk attitudes are measured using different methods (incentivized and non-incentivized elicitations) (Attanasi et al. 2018; Crosetto and Filippin 2016).

See the example of Indonesia in Afsah et al. (1996).

Afsah S, Laplante B, Wheeler D (1996) Controlling industrial pollution—a new paradigm. The World Bank—Policy Research Working Paper 1672

Andreoni J (1988) Why free ride?: Strategies and learning in public goods experiments. J Public Econ 37:291–304CrossRef

Andreoni J, Petrie R (2004) Public goods experiments without confidentiality: a glimpse into fund-raising. J Public Econ 88:1605–1623CrossRef

Angelova V, Armantier O, Attanasi G, Hiriart Y (2014) Relative performance of liability rules: experimental evidence. Theory Decis 77:531–556CrossRef

Attanasi G, Georgantzís N, Rotondi V, Vigani D (2018) Lottery- and survey-based risk attitudes linked through a multichoice elicitation task. Theory Decis 84:341–372CrossRef

Attanasi G, Concina L, Kamaté C, Rotondi V (2020) Firm’s protection against disasters: are investment and insurance substitutes or complements? Theory Decis 88:121–151CrossRef

Bennear LS, Olmstead SM (2008) The impacts of the “right to know": information disclosure and the violation of drinking water standards. J Environ Econ Manag 56:117–130CrossRef

Bernasconi M, Corazzini L, Seri R (2014) Reference dependent preferences, hedonic adaptation and tax evasion: does the tax burden matter? J Econ Psychol 40:103–118CrossRef

Blackman A, Afsah S, Ratunanda D (2004) How do public disclosure pollution control programs work? Evidence from Indonesia. Hum Ecol Rev 11:235–246

Blanco E, Lopez MC, Walker JM (2016) The opportunity costs of conservation with deterministic and probabilistic degradation externalities. Environ Resour Econ 64:255–273CrossRef

Blanco E, Haller T, Walker JM (2017) Externalities in appropriation: responses to probabilistic losses. Exp Econ 20:793–808CrossRef

Boun My K, Ouvrard B (2019) Nudge and tax in an environmental public goods experiment: Does environmental sensitivity matter? Resour Energy Econ 55:24–48CrossRef

Bramoullé Y, Orset C (2018) Manufacturing doubt. J Environ Econ Manag 90:119–133CrossRef

Brown J (1973) Towards an economic theory of liability. J Legal Stud 2:323–349CrossRef

Brown-Kruse J, Hummels D (1993) Gender effects in laboratory public goods contributions. J Econ Behav Organ 22:255–267CrossRef

Buchens C, Deffains B, Palermo A (2019) Stigmatization, liability and public enforcement of law. Revue d’economie politique 129:235–259CrossRef

Calabresi G (1970) The cost of accidents, a legal and economic analysis. Yale University Press, New Haven

Capelle-Blancard G, Laguna M-A (2010) How does the stock market respond to chemical disasters? J Environ Econ Manag 59:192–205CrossRef

Cohen MD, Burkhart R, Dosi G, Egidi M, Marengo L, Warglien M, Winter S (1996) Routines and other recurring action patterns of organizations: contemporary research issues. Ind Corp Change 5(3):653–698CrossRef

Crosetto P, Filippin A (2016) A theoretical and experimental appraisal of four risk elicitation methods. Exp Econ 19:613–641CrossRef

Croson RTA (2007) Theories of commitment, altruism and reciprocity: evidence from linear public goods games. Econ Inq 45:199–216CrossRef

Croson R, Fatas E, Neugebauer T, Morales AJ (2015) Excludability: a laboratory study on forced ranking in team production. J Econ Behav Organ 114:13–26CrossRef

de Groot JI, Schuitema G (2012) How to make the unpopular popular? Policy characteristics, social norms and the acceptability of environmental policies. Environ Sci Policy 19–20:100–107CrossRef

Deffains B, Fluet C (2013) Legal liability when individuals have moral concerns. J Law Econ Organ 29:930–955CrossRef

Deffains B, Espinosa R, Fluet C (2019) Laws and norms: experimental evidence with liability rules. Int Rev Law Econ 60:1–16CrossRef

Eckel CC, Grossman PJ (2002) Sex differences and statistical stereotyping in attitudes toward financial risk. Evol Hum Behav 23:281–295CrossRef

Endres A, Bertram R (2006) The development of care technology under liability law. Int Rev Law Econ 26:503–518CrossRef

Endres A, Bertram R, Rundshagen B (2008) Environmental liability law and induced technical change: the role of spillovers. J Inst Theor Econ 164:254–279CrossRef

Environment Agency of United Kingdom, E. A. U. K. (2022) https://www.gov.uk/government/publications/water--and--sewerage--companies--in--england--environmental--performance--report--2020/water--and--sewerage--companies--in--england--environmental--performance--report--for--2020

EPA (2021) Water firms discharged raw sewage into English waters 400,000 times last year. Available at: https://www.theguardian.com/environment/2021/mar/31/water--firms--discharged--raw--sewage--into--english--waters--400000--times--last--year

Ferrey S (2009) Inverting the law: superfund hazardous substance liability and supreme court reversal of all federal circuits. William Mary Environ Law Policy Rev 33:633–722

Fischbacher U, Gächter S (2010) Social preferences, beliefs, and the dynamics of free riding in public goods experiments. Am Econ Rev 100:541–556CrossRef

Flambard V, Le Lec F, Romaniuc R (2020) How does risk affect collective participation? Public good provision versus public bad prevention. Mimeo, New York

Foulon J, Lanoie P, Laplante B (2002) Incentives for pollution control: regulation or information? J Environ Econ Manag 44:169–187CrossRef

Gächter S, Renner E (2010) The effects of (incentivized) belief elicitation in public goods experiments. Exp Econ 13:364–377CrossRef

García JH, Sterner T, Afsah S (2007) Public disclosure of industrial pollution: the PROPER approach for Indonesia? Environ Dev Econ 12:739–756CrossRef

García JH, Afsah S, Sterner T (2009) Which firms are more sensitive to public disclosure schemes for pollution control? Evidence from Indonesia’s PROPER Program. Environ Resource Econ 42:151–168CrossRef

German Federal Ministry of Justice, G. F. M. J. (2022) https://www.gesetze--im--internet.de/englisch_bgb/englisch_bgb.html

Gonenc H, Scholtens B (2017) Environmental and financial performance of fossil fuel firms: a closer inspection of their interaction environmental and financial performance of fossil fuel firms: a closer inspection of their interaction environmental and financial performance of fossil fuel firms: a closer inspection of their interaction. Ecol Econ 132:307–328CrossRef

Greiner B (2015) Subject pool recruitment procedures: organizing experiments with ORSEE. J Econ Sci Assoc 1:114–125CrossRef

Hocquet-Berg S (2017) Répartition de la dette de réparation des dommages causés par le DES en fonction des parts de marché, CA Versailles, 14 avril 2016, RG no 16/00296. Revue générale du droit (online). www.revuegeneraledudroit.eu/?p=25012

Huet-Vaughn E, Muller N, Hsu Y-C (2018) Livestreaming pollution: a new form of public disclosure and a catalyst for citizen engagement? NBER working paper 24664

Jacob J, Lambert E-A, Garcia S (2022) Efficiency of liability-sharing rules: an experimental case. J Inst Theor Econ (JITE) 178:1–42CrossRef

Jacquet J, Jamieson D (2016) Soft but significant power in the Paris Agreement. Nat Clim Change 6:643–646CrossRef

Kahneman D, Tversky A (1973) Availability: a heuristic for judging frequency and probability. Cogn Psychol 5:207–232CrossRef

Keser C, Montmarquette C (2008) Voluntary contributions to reduce expected public losses. J Econ Behav Organ 66:477–491CrossRef

Konar S, Cohen MA (1997) Information as regulation: the effect of community right to know laws on toxic emissions. J Environ Econ Manag 32:109–124CrossRef

Kornhauser LA, Revesz RL (1989) Sharing damages among multiple tortfeasors. Yale Law J 98:831–884CrossRef

Kornhauser LA, Revesz RL (1990) Apportioning damages among potentially insolvent actors. J Leg Stud 19:617–651CrossRef

Kornhauser L, Schotter A (1990) An experimental study of single-actor accidents. J Leg Stud 19:203–233CrossRef

Kornhauser L, Schotter A (1992) An experimental study of two-actor accidents. C.V. Starr Center for applied economics—economic research report

Lopez-Perez R (2010) Guilt and shame: an axiomatic analysis. Theor Decis 69:569–586CrossRef

Maestre-Andres S, Drews S, van den Bergh J (2019) Perceived fairness and public acceptability of carbon pricing: a review of the literature. Clim Policy 19:1186–1204CrossRef

Nalbantian HR, Schotter A (1997) Productivity under group incentives: an experimental study. Am Econ Rev 87(3):314–341

Nielsen K (2019) Dynamic risk preferences under realized and paper outcomes. J Econ Behav Organ 161:68–78CrossRef

Pien C-P (2020) Local environmental information disclosure and environmental non-governmental organizations in Chinese prefecture-level cities. J Environ Manag 275:211–225CrossRef

Pinkowski B (1996) Simplifying CERCLA defenses to liability. Urban Lawyer 28:197–221

Powers N, Blackman A, Lyon TP, Narain U (2011) Does disclosure reduce pollution? Evidence from India’s Green Rating Project. Environ Resour Econ 50:131–155CrossRef

Rege M, Telle K (2004) The impact of social approval and framing on cooperation in public good situations. J Public Econ 88:1625–1644CrossRef

Samek A, Sheremeta R (2014) Recognizing contributors: an experiment on public goods. Exp Econ 17:673–690CrossRef

Schatz A (2008) Regulating greehouse gases by mandatory information disclosure. VA Environ Law J 26:335–393

Shavell S (1980) Strict liability versus negligence. J Legal Stud 9:1–25CrossRef

Soetevent A (2005) Anonimity in giving in a natural context—a field experiment in 30 churches. J Public Econ 89:2301–2323CrossRef

Sonnemans J, Schram A, Offerman T (1998) Public good provision and public bad prevention: the effect of framing. J Econ Behav Organ 34:143–161CrossRef

Steg L, Groot JIMD, Dreijerink L, Abrahamse W, Siero F (2011) General antecedents of personal norms, policy acceptability, and intentions: the role of values, worldviews, and environmental concern. Soc Nat Resour 24:349–367CrossRef

Tadelis S (2011) The power of shame and the rationality of trust. Haas School of Business Working Paper

Thaler R, Johnson E (1990) Gambling with the house money and trying to break even: the effects of prior outcomes on risky choice. Manag Sci 36:643–660CrossRef

Tietenberg T (1998) Disclosure strategies for pollution control. Environ Resour Econ 11:587–602CrossRef

Walker JM, Gardner R (1992) Probabilistic destruction of common-pool resources: experimental evidence. Econ J 102:1149–1161CrossRef

Title: Information disclosure under liability: an experiment on public bads
Authors: Julien Jacob
Eve-Angéline Lambert
Mathieu Lefebvre
Sarah Van Driessche
Publication date: 27-12-2022
Publisher: Springer Berlin Heidelberg
Published in: Social Choice and Welfare / Issue 1/2023
Print ISSN: 0176-1714
Electronic ISSN: 1432-217X
DOI: https://doi.org/10.1007/s00355-022-01444-0

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 1/2023

Two new classes of methods to share the cost of cleaning up a polluted river

Families of abstract decision problems whose admissible sets intersect in a singleton

A topological characterization of generalized stable sets

Foundations of utilitarianism under risk and variable population

Optimality of the coordinate-wise median mechanism for strategyproof facility location in two dimensions

On the political economy of economic integration