Environmental Risk Control Using Surety Bond

Abstract

Although surety bond, as well as liability insurance, is one of the methods which establish firms' financial responsibility for environmental risks and liability insurance is studied in many papers, there is no literature on the ability of surety bond to control environmental risks. This article analyzes the function of surety bond using the model in which wealth constraint is set more precisely than in the models used in the literature. The result shows that there is a chance that surety bond is superior to liability insurance as financial security for controlling environmental risks.