The Economics of Environmental Liability Law — A Dynamic View

A survey of the environmental economics literature reveals that there has been a certain shift in the focus of research. Earlier, the static analysis of internalization strategies and instruments of environmental policy has dominated the literature. Recently, there has been increasing attention to dynamic issues, emphasizing on inducing environmentally friendly technical change. The theoretical appeal and the policy relevance of this aspect are obvious: One of the most prominent catchwords in the scientific and in the public policy debate has been sustainable development. Even though different people interpret this term differently (an observation which is true for many popular catchwords) there is one feature which is common to all definitions of sustainable development: public policy, and environmental policy in particular, must take a long run perspective. In this perspective, environmental policy must not be confined to the question which has been traditionally in the centre of environmental economic analysis: how can environmental policy induce decision makers to apply a given environmental protection technology efficiently? Taking the long run perspective this question must be supplemented by the question: how can environmental policy induce decision makers to develop environmentally friendly technologies? Of course, these two approaches are not alternatives to each other. Comprehensive environmental policy must establish proper static and dynamic incentives, simultaneously.