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

Author

Listed:
  • Jeong Yoo Kim

    (Kyung Hee University)

  • Sang Lyong Joo

    (Hong Ik University)

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.

Suggested Citation

  • Jeong Yoo Kim & Sang Lyong Joo, 2005. "Precaution, Cleanup and Liability: A Model of Environmentally Harmful Discharges," Korean Economic Review, Korean Economic Association, vol. 21, pages 23-33.
    • Handle: RePEc:kea:keappr:ker-20050630-21-1-02
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    More about this item

    Keywords

    Cleanup; Liability Rule; Property Rule;
    All these keywords.

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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