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Optimal Cleanup and Liability After Environmentally Harmful Discharges

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Author Info
A. Mitchell Polinsky
Steven Shavell

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4176.

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Date of creation: Sep 1992
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Handle: RePEc:nbr:nberwo:4176

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  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 & Economics, University of Chicago Press, vol. 30(1), pages 23-51, April.
  2. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-67, May. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. Segerson, Kathleen, 1990. "Liability for groundwater contamination from pesticides," Journal of Environmental Economics and Management, Elsevier, vol. 19(3), pages 227-243, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lichtenberg, Erik & Penn, Tony M., 2001. "Prevention Versus Treatment Under Precautionary Regulation: A Case Study Of Groundwater Contamination Under Uncertainty," Working Papers 28584, University of Maryland, Department of Agricultural and Resource Economics. [Downloadable!]
    Other versions:
  2. James BARRETT & Kathleen SEGERSON, . "Prevention And Treatment In Food Safety: An Analysis Of Conceptual Issues," Department of Resource Economics Regional Research Project 9521, University of Massachusetts. [Downloadable!]
    Other versions:
  3. Y.H. Farzin & J.D. Kaplan, . "Nonpoint Source Pollution Control Under Incomplete and Costly Information," Working Papers 1999.32, Fondazione Eni Enrico Mattei. [Downloadable!]
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