IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/4176.html
   My bibliography  Save this paper

Optimal Cleanup and Liability After Environmentally Harmful Discharges

Author

Listed:
  • A. Mitchell Polinsky
  • Steven Shavell

Abstract

This article studies how liability for environmentally harmful discharges affects the incentives of firms to engage in cleanup and invest in precautions, as well as the incentives of consumers to purchase the goods whose production leads to discharges. Our main conclusion is that making firms responsible for cleanup and strictly liable for any remaining harm will lead to the socially optimal outcome. We also show that under the negligence approach -- whereby a firm is liable for damages only if it fails to take appropriate precautions or to engage in proper cleanup -- the outcome will not be optimal: too much of the good will be purchased.

Suggested Citation

  • A. Mitchell Polinsky & Steven Shavell, 1992. "Optimal Cleanup and Liability After Environmentally Harmful Discharges," NBER Working Papers 4176, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4176
    Note: LE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w4176.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Cohen, Mark A, 1987. "Optimal Enforcement Strategy to Prevent Oil Spills: An Application of a Principal-Agent Model with Moral Hazard," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 23-51, April.
    2. Cohen, Mark A., 1986. "The costs and benefits of oil spill prevention and enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 13(2), pages 167-188, June.
    3. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-367, May.
    4. Segerson, Kathleen, 1990. "Liability for groundwater contamination from pesticides," Journal of Environmental Economics and Management, Elsevier, vol. 19(3), pages 227-243, November.
    5. Segerson, Kathleen, 1989. "Risk and incentives in the financing of hazardous waste cleanup," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 1-8, January.
    6. Burrows, Paul & Rowley, Charles & Owen, David, 1974. "The economics of accidental oil pollution by tankers in coastal waters," Journal of Public Economics, Elsevier, vol. 3(3), pages 251-268, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Y. Farzin & Jonathan Kaplan, 2004. "Nonpoint Source Pollution Control under Incomplete and Costly Information," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 28(4), pages 489-506, August.
    2. Friehe, Tim & Langlais, Eric, 2017. "Prevention and cleanup of dynamic harm under environmental liability," Journal of Environmental Economics and Management, Elsevier, vol. 83(C), pages 107-120.
    3. Erik Lichtenberg & Tony M. Penn, 2003. "Prevention versus Treatment under Precautionary Regulation: A Case Study of Groundwater Contamination under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(1), pages 44-58.
    4. James BARRETT & Kathleen SEGERSON, "undated". "Prevention And Treatment In Food Safety: An Analysis Of Conceptual Issues," Department of Resource Economics Regional Research Project 9521, University of Massachusetts.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gottinger, Hans W., 1998. "Monitoring pollution accidents," European Journal of Operational Research, Elsevier, vol. 104(1), pages 18-30, January.
    2. Bolin, Kristian, 1999. "The Ownership Of Funds And Systems For Reparation Of Very Large Accidents," Working Papers 1999:006, Lund University, Department of Economics.
    3. Muehlenbachs, Lucija & Cohen, Mark A. & Gerarden, Todd, 2013. "The impact of water depth on safety and environmental performance in offshore oil and gas production," Energy Policy, Elsevier, vol. 55(C), pages 699-705.
    4. Montserrat Grau & Theodore Groves, 1997. "The Oil Spill Process: The Effect of Coast Guard Monitoring on Oil Spills," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 10(4), pages 315-339, December.
    5. Vollaard, Ben, 2017. "Temporal displacement of environmental crime: Evidence from marine oil pollution," Journal of Environmental Economics and Management, Elsevier, vol. 82(C), pages 168-180.
    6. Bartsch, Elga, 1996. "Enforcement of environmental liability in the case of uncertain causality and asymmetric information," Kiel Working Papers 755, Kiel Institute for the World Economy (IfW Kiel).
    7. Jay P. Shimshack, 2014. "The Economics of Environmental Monitoring and Enforcement," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 339-360, October.
    8. Bhole, Bharat & Wagner, Jeffrey, 2008. "The joint use of regulation and strict liability with multidimensional care and uncertain conviction," International Review of Law and Economics, Elsevier, vol. 28(2), pages 123-132, June.
    9. Robert Innes & Dennis Cory, 2001. "The Economics of Safe Drinking Water," Land Economics, University of Wisconsin Press, vol. 77(1), pages 94-117.
    10. Krupnick, Alan & Campbell, Sarah & Cohen, Mark A. & Parry, Ian W.H., 2011. "Understanding the Costs and Benefits of Deepwater Oil Drilling Regulation," RFF Working Paper Series dp-10-62, Resources for the Future.
    11. Shouqiang Wang & Peng Sun & Francis de Véricourt, 2016. "Inducing Environmental Disclosures: A Dynamic Mechanism Design Approach," Operations Research, INFORMS, vol. 64(2), pages 371-389, April.
    12. Arguedas, Carmen & Rousseau, Sandra, 2009. "A note on the complementarity of uniform emission standards and monitoring strategies," Working Papers 2009/12, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    13. Hochman, Oded & Rausser, Gordon C., 1999. "Zoning as a control of pollution in a spatial environment," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0qq9849t, Department of Agricultural & Resource Economics, UC Berkeley.
    14. Jeong-Yoo Kim, 2024. "Law and Economics of Artificial Intelligence: Optimal Liability Rules for Accident Losses Caused by Fully Autonomous Vehicles," Korean Economic Review, Korean Economic Association, vol. 40, pages 49-75.
    15. Berrone, Pascual & Gelabert, Liliana & Fosfuri, Andrea & Gomez-Mejia, Luis R., 2007. "Can institutional forces create competitive advantage? An empirical examination of environmental innovation," IESE Research Papers D/723, IESE Business School.
    16. Arguedas, Carmen & Rousseau, Sandra, 2012. "Learning about compliance under asymmetric information," Resource and Energy Economics, Elsevier, vol. 34(1), pages 55-73.
    17. Kishore Gawande & Alok K. Bohara, 2005. "Agency Problems in Law Enforcement: Theory and Application to the U.S. Coast Guard," Management Science, INFORMS, vol. 51(11), pages 1593-1609, November.
    18. Joshua Schwartzstein & Andrei Shleifer, 2013. "An Activity-Generating Theory of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 56(1), pages 1-38.
    19. Siebert, Horst, 1989. "Liability issues in pollution control," Kiel Working Papers 350, Kiel Institute for the World Economy (IfW Kiel).
    20. Arnott, Richard & Hochman, Oded & Rausser, Gordon C., 2008. "Pollution and land use: Optimum and decentralization," Journal of Urban Economics, Elsevier, vol. 64(2), pages 390-407, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4176. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.