Environmental Protection for Developing Countries: The Polluter-Does-Not-Pay Principle
Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics; University of St. Thomas School of Law
University of Minnesota - Law School; University of Bologna
George Mason University - Department of Economics; New York University (NYU) - Department of Economics
February 6, 2009
International Review of Law and Economics, Forthcoming
Minnesota Legal Studies Research Paper No. 09-08
The polluter-pays principle stipulates that the person who damages the environment must bear the cost of such damage. A number of developing countries have recently extended this principle to create an obligation on the state to compensate the victims of environmental harm. This variation of the polluter-pays principle is aimed at ensuring victims' compensation when polluters cannot be identified or are insolvent. These regimes hold state and local governments primarily or jointly-and-severally liable for environmental damage and allow the government to act in subrogation against the polluters. In this paper we study the effect of this form of governmental liability, which we describe as the polluter-does-not-pay regime, on the polluters' incentives and on aggregate levels of environmental harm. We develop an economic model to study the polluter-does-not-pay principle, identifying the conditions under which this regime may be a more effective instrument for environmental protection. We conclude by suggesting that this regime may be desirable in environments characterized by widespread poverty, high interest rates, judicial delays and uncertainty in adjudication.
Number of Pages in PDF File: 41
Keywords: environmental protection, polluter-pays principle, state laibility
JEL Classification: K13, K32, Q56Accepted Paper Series
Date posted: February 7, 2009 ; Last revised: November 14, 2011
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