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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).

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

    1. 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.
    2. Marie-Cécile Fagart & Claude Fluet, 2009. "Liability insurance under the negligence rule," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 486-508.
    3. Endres,Alfred, 2011. "Environmental Economics," Cambridge Books, Cambridge University Press, number 9780521173926, March.
    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," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 46(4), pages 403-428, August.
    6. Maia David & Bernard Sinclair-Desgagné, 2005. "Environmental Regulation and the Eco-Industry," Journal of Regulatory Economics, Springer, vol. 28(2), pages 141-155, September.
    7. Endres,Alfred, 2011. "Environmental Economics," Cambridge Books, Cambridge University Press, number 9781107002142, March.
    8. Miceli Thomas J., 2006. "On Negligence Rules and Self-Selection," Review of Law & Economics, De Gruyter, vol. 2(3), pages 349-361, October.
    9. Anger, Niels & Böhringer, Christoph & Lange, Andreas, 2006. "Differentiation of Green Taxes: A Political-Economy Analysis for Germany," ZEW Discussion Papers 06-003, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    10. 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 427-447, June.
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    Cited by:

    1. Michael Finus & Bianca Rundshagen, 2015. "Game Theory and Environmental and Resource Economics–In Honour of Alfred Endres," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(4), pages 657-664, December.

    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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