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The Monopolistic Polluter under Environmental Liability Law: Incentives for Abatement and R&D

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  • Alfred Endres
  • Tim Friehe

Abstract

This paper analyzes the output, abatement, and investment decisions made by a monopolistic polluter under environmental liability law. The model applied considers both integrated and end-of-pipe abatement technologies. We find that in the case of fixed technology, in many instances negligence produces more favorable results than strict liability in terms of social welfare. The reason is that output under strict liability is always less than first-best output, whereas output under negligence is not similarly limited. However, this ranking of liability rules may be reversed when technology is endogenous. Under such conditions investment in both integrated and end-of-pipe abatement technologies under negligence is guided by motives foreign to the social planner, whereas the polluter's calculus under strict liability is similar to that of the social planner.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3649.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3649

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  1. Endres, Alfred & Friehe, Tim, 2011. "Incentives to diffuse advanced abatement technology under environmental liability law," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 30-40, July.
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Cited by:
  1. Bouwe Dijkstra & Maria J. Gil-Moltó, 2014. "Is Emission Intensity or Output U-shaped in the Strictness of Environmental Policy," CESifo Working Paper Series 4833, CESifo Group Munich.

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