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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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File URL: http://le.uwpress.org/cgi/reprint/88/1/121
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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
Contact details of provider: Web page: http://le.uwpress.org/

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  1. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental regulation and eco-industries," Working Papers 156814, Institut National de la Recherche Agronomique, France.
  2. Bernard Sinclair-Desgagné & Maia David, 2005. "Environmental Regulationand the Eco-Industry," Working Papers 2005.56, Fondazione Eni Enrico Mattei.
  3. Fullerton, Don & Wolverton, Ann, 2005. "The two-part instrument in a second-best world," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1961-1975, September.
  4. 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.
  5. Grischa Perino, 2010. "Technology Diffusion with Market Power in the Upstream Industry," University of East Anglia Applied and Financial Economics Working Paper Series 005, School of Economics, University of East Anglia, Norwich, UK..
  6. 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.
  7. 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.
  8. Marie-Cécile Fagart & Claude Fluet, 2007. "Liability Insurance under the Negligence Rule," Cahiers de recherche 0730, CIRPEE.
  9. Miceli Thomas J., 2006. "On Negligence Rules and Self-Selection," Review of Law & Economics, De Gruyter, vol. 2(3), pages 349-361, October.
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