Prevention and cleanup of dynamic harm under environmental liability

Tim Friehe and Eric Langlais

Journal of Environmental Economics and Management, 2017, vol. 83, issue C, 107-120

Abstract: This paper explores incentives for accident prevention and cleanup when firms are subject to environmental liability. In our two-period setup, the level of environmental harm in the second period depends on first-period harm when cleanup was incomplete. Under strict liability, in the first period, firms with a positive probability of going out of business before the second period have inadequate prevention and cleanup incentives. The fundamental disconnect between private incentives and social optimality cannot be remedied by using a multiple of harm as the level of compensation. Under negligence with a causation requirement, incentive problems remain; however, under negligence without such a requirement, first-best incentives may emerge, and using a multiple of harm as the level of compensation can ensure the efficient solution.

Keywords: Environmental liability law; Prevention; Cleanup; Care; Environmental harm (search for similar items in EconPapers)
JEL-codes: K13 Q58 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0095069616300705
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Prevention and Cleanup of Dynamic Harm Under Environmental Liability (2017)
Working Paper: Prevention and Cleanup of Dynamic Harm Under Environmental Liability (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:83:y:2017:i:c:p:107-120

DOI: 10.1016/j.jeem.2017.01.005

Access Statistics for this article

Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

More articles in Journal of Environmental Economics and Management from Elsevier
Bibliographic data for series maintained by Catherine Liu ().