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

  • Alfred Endres
  • Tim Friehe

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).

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Article provided by University of Wisconsin Press in its journal Land Economics.

Volume (Year): 88 (2012)
Issue (Month): 1 ()
Pages: 121-138

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Handle: RePEc:uwp:landec:v:88:y:2012:i:1:p:121-138
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  1. Don Fullerton & Ann Wolverton, 2003. "The Two-Part Instrument in a Second-Best World," NBER Working Papers 10140, National Bureau of Economic Research, Inc.
  2. Thomas J. Miceli, 2006. "On Negligence Rules and Self-Selection," Working papers 2006-26, University of Connecticut, Department of Economics.
  3. Grischa Perino, 2010. "Technology Diffusion with Market Power in the Upstream Industry," University of East Anglia School of Economics Working Paper Series 005, School of Economics, University of East Anglia, Norwich, UK..
  4. Marie-Cécile Fagart & Claude Fluet, 2009. "Liability insurance under the negligence rule," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 486-508.
  5. Endres,Alfred, 2011. "Environmental Economics," Cambridge Books, Cambridge University Press, number 9780521173926, October.
  6. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental Regulation and the Eco-Industry," Journal of Regulatory Economics, Springer, vol. 28(2), pages 141-155, 09.
  7. repec:inr:wpaper:156814 is not listed on IDEAS
  8. Kahan, Marcel, 1989. "Causation and Incentives to Take Care under the Negligence Rule," The Journal of Legal Studies, University of Chicago Press, vol. 18(2), pages 427-47, June.
  9. Anger, Niels & Böhringer, Christoph & Lange, Andreas, 2006. "Differentiation of Green Taxes: A Political-Economy Analysis for Germany," ZEW Discussion Papers 06-03, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Endres,Alfred, 2011. "Environmental Economics," Cambridge Books, Cambridge University Press, number 9781107002142, October.
  11. Cristina Ciocirlan & Bruce Yandle, 2003. "The Political Economy of Green Taxation in OECD Countries," European Journal of Law and Economics, Springer, vol. 15(3), pages 203-218, May.
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