Environmental Law and Economics in Europe and

in the United States

René Smickt

Linköpings universitet

Institutionen för ekonomisk och industriell utveckling

Course: Law and Economics

April 2008

Table of contet

ABSTRACT: 3

1

INTRODUCTION 3

2

ENVIRONMENTAL LAW AND ECONOMICS ISSUES 4

3

"LEGAL" VERSUS "ECONOMIC" INSTRUMENTS 5

4

ALTERNATIVE METHODS TO THE CONTROL OF ENVIRONMENTAL RISK 7

5

CRIMINAL ENFORCEMENT OF ENVIRONMENTAL LAWS 8

6

Conclusion 10

REFERENCES 11

2

ABSTRACT:

The paper analyses the general structure of the law and economics theory applied to

environmental issues. The general idea of the law and economics literature is provided

focusing, in particular, on the comparison between legal and economic instruments to control

environmental risk. The core of this paper is that the selection of a regulation framework and

a legal framework to implement an environmental policy is a demanding task, which calls for

structured analysis to model the interactions between governments, firms and regulators.

1 INTRODUCTION

Fundamental objective of this contribution is to talk about the law and economics with respect

to environmental regulation. In turn to do that, an overview of the literature within the

traditional economic analysis of law method is provided concentrating, in particular, on the

comparison between legal and economic instruments to control environmental risk.

Environmental law and economics deals with, among other topics, "legal" instruments such as

liability rules and the traditional command and control mechanisms like environmental

standards and targets and "economic" instruments (such as taxes and marketable pollution

rights). Nevertheless, this terminological distinction can be deceptive in view of the fact that

the legal instruments are also economic, in the sense that they offer an incentive to obey with

certain policy goals. Likewise, the economic instruments are also legal in the sense that a

system of taxes or marketable pollution rights needs a legal framework to be effective (Faure,

1998). The thought of applying economic concepts to increase a better understanding of law

helps either in explaining how legal rules progress, or what might be the consequences of

alternative rules. Largely, one of the most controversial philosophy of law and economics is

the so called "efficiency criterion" which stresses that the primary objective of a legal system

has to be efficiency and that rules have to be evaluated for their capability of supplying

incentives for the maximization of the society′s aggregate benefits; in fact, the "wealth

maximization" principle proposed by Posner is a mean of applying the efficiency test (Posner

1972, 1983, Landes and Posner, 1987). Notably there is a big gap in the law and economics

movement between United States and Europe, both for methodological aspects and legal

frameworks. So the structural differences between common law and civil law, it is not

possible to give a general opinion concerning the superiority in efficiency of one system

relative to the other. There are no grounds to assume that one system is better or worse suited

for economic analysis than the other. Nowadays in the United States, law and economics has

led to outstanding and innovative ways for analyzing legal rules in all areas of law, from

3