Environmental Protection for Developing Countries: The Polluter-Does-Not-Pay Principle

41 Pages Posted: 7 Feb 2009 Last revised: 14 Nov 2011

See all articles by Barbara Luppi

Barbara Luppi

University of St. Thomas School of Law; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Shruti Rajagopalan

Classical Liberal Institute, NYU School of Law; Mercatus Center at George Mason University

Date Written: February 6, 2009

Abstract

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.

Keywords: environmental protection, polluter-pays principle, state laibility

JEL Classification: K13, K32, Q56

Suggested Citation

Luppi, Barbara and Parisi, Francesco and Rajagopalan, Shruti, Environmental Protection for Developing Countries: The Polluter-Does-Not-Pay Principle (February 6, 2009). International Review of Law and Economics, Forthcoming, Minnesota Legal Studies Research Paper No. 09-08, Available at SSRN: https://ssrn.com/abstract=1339063

Barbara Luppi

University of St. Thomas School of Law

2115 Summit Avenue
Saint Paul, MN 55105
United States

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy

Francesco Parisi (Contact Author)

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

Shruti Rajagopalan

Classical Liberal Institute, NYU School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Mercatus Center at George Mason University ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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