Optimal Cleanup and Liability After Environmentally Harmful Discharges
AbstractThis 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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4176.
Date of creation: Sep 1992
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