This paper reports economic analyses of environmental audit systems and responsibility sharing. A voluntary audit system and a compulsory audit system are examined in the context of environmental accidents and liabilities. Under the voluntary audit system, the first-best outcome is realized in the equilibrium if and only if the auditor chooses a separation contract that separates the type of each firm. On the other hand, under the compulsory audit system, the first-best outcome is always realized in the equilibrium. That is the compulsory environmental audit system is more effective than the voluntary environmental audit system.
JEL Classification: K32, Q58
