We consider the regulatory problem to approve or to ban a new product/technology, in a context of scientific controversy about its environmental and/or health detrimental effects. We formalize the regulator decision-making as a Tullock contest (1980), the contestants being an industrial lobby, representing the economic agents who have developed the new product/technology, and an environmental lobby, representing the economic agents who will be harmed by its environmental and/or health detrimental effects. Assuming that the industrial lobby has private information about the environmental and/or health detrimental effects, but can be held liable for damage ex post, we derive the properties of the equilibrium of the contest. In particular, we give conditions under which it is socially preferable that the regulator decides according to the contest, rather than according to an ex ante cost-benefit analysis, using his prior beliefs. We find that the contest outperforms the ex ante cost-benefit analysis only if the risk of judgment-proofness is not too high.
Keywords : contest model, information asymmetry, law and economics, optimal regulation.
JEL Classification : C7 – D7 – D8.