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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.

Suggested Citation

  • Alfred Endres & Tim Friehe, 2011. "The Monopolistic Polluter under Environmental Liability Law: Incentives for Abatement and R&D," CESifo Working Paper Series 3649, CESifo.
    • Handle: RePEc:ces:ceswps:_3649
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    Cited by:

    1. Bouwe R. Dijkstra & Maria J. Gil‐Moltó, 2018. "Is emission intensity or output U‐shaped in the strictness of environmental policy?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(2), pages 177-201, April.
    2. Eric Langlais & Andreea Cosnita-Langlais, 2022. "Incentives to differentiate under environmental liability laws : Product customization and precautionary effort," EconomiX Working Papers 2022-20, University of Paris Nanterre, EconomiX.
    3. Alfred Endres & Tim Friehe, 2012. "Generalized Progress of Abatement Technology: Incentives Under Environmental Liability Law," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(1), pages 61-71, September.
    4. Alfred Endres & Tim Friehe, 2015. "The Compensation Regime in Liability Law: Incentives to Curb Environmental Harm, Ex Ante and Ex Post," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(1), pages 105-123, September.

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    More about this item

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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