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Market Power in the Eco-industry: Polluters’ Incentives under Environmental Liability Law

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  • Alfred Endres
  • Tim Friehe

Abstract

This paper analyzes the output and abatement choices of perfectly competitive downstream polluters who are subject to environmental liability law and procure abatement from an imperfectly competitive eco-industry. Under strict liability, polluting firms choose suboptimal abatement, but socially optimal output given abatement. Under negligence with firm-specific abatement standards, polluting firms choose suboptimal output but socially optimal abatement given output. Under negligence with industry-wide abatement standards, the output and abatement choices of most firms are socially suboptimal. Second-best considerations are offered for each case. Under strict liability (negligence), these apply to the level of liability (the behavioral standard).

Suggested Citation

  • Alfred Endres & Tim Friehe, 2012. "Market Power in the Eco-industry: Polluters’ Incentives under Environmental Liability Law," Land Economics, University of Wisconsin Press, vol. 88(1), pages 121-138.
    • Handle: RePEc:uwp:landec:v:88:y:2012:i:1:p:121-138
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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