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Environmental federalism and environmental liability

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  • van 't Veld, Klaas
  • Shogren, Jason F.

Abstract

Environmental federalism considers what level of government should optimally regulate pollution. This paper addresses this question for accidental pollution, which government regulates through the ex post liability regimes of either negligence or strict liability. We find that decentralizing the choice between these regimes does not, in general, induce the socially optimal outcome. When firms can pay all damages, all regions may choose negligence and impose an overly strict standard of due care. When firms may be bankrupted by damages, all regions may choose strict liability, which induces too little care. In addition, asymmetric equilibria are possible in which some regions choose negligence, others strict liability. Combining negligence with a Pigovian tax, or strict liability with a bonding requirement can align regional authorities' incentives with those of a central government.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 63 (2012)
Issue (Month): 1 ()
Pages: 105-119

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Handle: RePEc:eee:jeeman:v:63:y:2012:i:1:p:105-119

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Environmental federalism; Environmental liability; Judgment proof problem; Industrial accidents; Bankruptcy; Financial responsibility;

References

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Cited by:
  1. Tim Friehe & Eric Langlais, 2014. "On the Political Economy of Public Safety Investments," EconomiX Working Papers 2014-8, University of Paris West - Nanterre la Défense, EconomiX.

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