Precaution, Cleanup and Liability: A Model of Environmentally Harmful Discharges

Jeong-Yoo Kim and Sang Lyong Joo
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Sang Lyong Joo: Hong Ik University

Korean Economic Review, 2005, vol. 21, 23-33

Abstract: We provide a game theoretic model to examine how liability or sanction of cleanup affects the potential contaminator's ex ante incentive to take precaution against environmentally harmful discharge and ex post incentive to clean them up. We show that the liability rule is socially more desirable than the property rule (sanction of cleanup), mainly because the latter has the negative effect on the incentive for voluntary cleanup. We also show that punitive damages induce more cleanup and a higher level of precaution.

Keywords: Cleanup; Liability Rule; Property Rule (search for similar items in EconPapers)
JEL-codes: K32 Q53 (search for similar items in EconPapers)
Date: 2005
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