Two liability schemes can be used by jurisdictions to ascertain firms comply with environmental protection. Strict liability enforces the companies to use appropriate care. However, the consumers have to be forced to protect themselves, too, by the use of the defence of contributory negligence. Then, the social optimal behaviour of both, the firm and the consumers is reached.
As for negligence, this may induce the firm to take appropriate care. However, as wealth among firms is heterogeneous, this does not necessarily hold for all firms. Additionally, negligence induces con-sumers to purchase too much.
Table of Contents
1 The basics
2 Choice of the liability rule
2.1 The model
2.2 Socially Optimal Locations and Levels of Care
2.3 Strict liability and harmonization
2.4 Negligence and cooperative regulation
2.5 Competition among regulators
2.6 Provisional summary
3 Joint use of liability and safety regulation
3.1 Ex ante safety regulation versus ex post liability
4 Efficient liability rules
5 Economic instruments for environmental regulation
6 Conclusion
Objectives & Topics
This paper examines various liability schemes and regulatory instruments designed to manage environmental pollution and control the behavior of firms. It investigates how different legal rules—such as strict liability and negligence—influence the care levels of firms and the consumption patterns of consumers, aiming to identify conditions for socially optimal outcomes.
- Comparison of strict liability versus negligence in environmental regulation.
- Impact of firm wealth and risk attitudes on liability effectiveness.
- Strategic interaction and competition between jurisdictions regarding environmental standards.
- Evaluation of the joint application of ex-post liability and ex-ante safety standards.
- Assessment of economic instruments like emission trading and charges.
Excerpt from the Book
The basics
Legal rules give polluters the incentive to behave carefully. Some rules are more efficient than others. Strict liability, one of the two main liability schemes, implies that an injurer is liable for the damages done to a victim, no matter how high his level of care was. In the case of negligence, the injurer is only liable if he does not meet a certain standard of care, defined by the court. If he meets or exceeds the standard, the injurer’s liabilities will be zero.
In general, polluters are firms in competitive industries in long-run equilibrium. Polinsky considers the example of a firm emitting air pollution, which harms the surrounding households. The firms have the possibility to reduce the harm by installing filters. Anyway, there still remains some harm to the households and filters increase the costs of production. To start discussing the matter, households are assumed to not being able to affect the damages they suffer.
Summary of Chapters
1 The basics: Introduces the fundamental concepts of strict liability and negligence within the context of pollution control and firm behavior.
2 Choice of the liability rule: Analyzes theoretical models regarding regulatory standards, location decisions, and the strategic competition between jurisdictions.
3 Joint use of liability and safety regulation: Discusses the effectiveness of combining ex-post liability with ex-ante safety standards to mitigate environmental externalities.
4 Efficient liability rules: Explores the conditions under which liability rules achieve a unique Nash equilibrium that minimizes total social costs.
5 Economic instruments for environmental regulation: Evaluates practical tools such as emission trading programs, emission banking, and charges in controlling pollution.
6 Conclusion: Summarizes the findings, highlighting the superiority of strict liability with contributory negligence and the role of cooperation among regulators.
Keywords
Environmental Economics, Pollution Control, Strict Liability, Negligence, Social Optimum, Liability Rules, Jurisdictional Competition, Emission Trading, Economic Instruments, Safety Standards, Contributory Negligence, Firm Behavior, Externalities.
Frequently Asked Questions
What is the core focus of this research?
The paper focuses on evaluating different legal and economic frameworks—specifically liability schemes and regulatory measures—used to incentivize firms to control environmental pollution efficiently.
What are the primary themes discussed?
The central themes include the comparison of strict liability and negligence, the impact of firm wealth on compliance, the strategic behavior of jurisdictions, and the effectiveness of economic instruments like emission trading.
What is the main research objective?
The primary goal is to determine which liability or regulatory combinations best achieve a "socially optimal" outcome, where the costs of care and the environmental damages are balanced efficiently.
Which scientific methods are employed?
The paper utilizes analytical economic modeling, drawing upon existing academic literature (e.g., Polinsky, Van Egteren, Schmitz, Jain & Singh) to compare regulatory frameworks and their respective equilibria.
What is covered in the main body?
The main body systematically reviews liability models, the influence of jurisdictional competition on standard setting, the joint use of safety regulations and liability, and the practical application of environmental policy tools.
Which keywords characterize this work?
Key terms include Environmental Economics, Strict Liability, Negligence, Emission Trading, Social Optimum, and Jurisdictional Competition.
How does firm wealth affect the chosen liability scheme?
The paper notes that wealth heterogeneity is a critical factor; for poor firms, regulation might be more efficient, while for rich firms, strict liability can better incentivize appropriate care.
Why is cooperation among regulators emphasized?
Cooperation is emphasized because it can influence the feasibility of regulatory levels that would otherwise be unattainable in a competitive environment where jurisdictions use standards strategically.
What role does "contributory negligence" play?
It is presented as a necessary addition to liability rules to ensure that victims also have an incentive to take protective measures, thereby contributing to an overall more efficient outcome.
- Quote paper
- Jessica Mohr (Author), 2009, Pollution control in the economic environment, Munich, GRIN Verlag, https://www.grin.com/document/127110
