Optimal Cleanup and Liability after Environmentally Harmful Discharges

14 Pages Posted: 1 Jun 2011

See all articles by A. Mitchell Polinsky

A. Mitchell Polinsky

Stanford Law School; National Bureau of Economic Research (NBER)

Steven Shavell

Harvard Law School; National Bureau of Economic Research (NBER)

Date Written: September 1992

Abstract

This article studies how liability for environmentally harmful discharges affects the incentives of firms to engage in cleanup and invest in precautions, as well as the incentives of consumers to purchase the goods whose production leads to discharges. Our main conclusion is that making firms responsible for cleanup and strictly liable for any remaining harm will lead to the socially optimal outcome. We also show that under the negligence approach -- whereby a firm is liable for damages only if it fails to take appropriate precautions or to engage in proper cleanup -- the outcome will not be optimal: too much of the good will be purchased.

Suggested Citation

Polinsky, A. Mitchell and Shavell, Steven, Optimal Cleanup and Liability after Environmentally Harmful Discharges (September 1992). NBER Working Paper No. w4176. Available at SSRN: https://ssrn.com/abstract=1856394

A. Mitchell Polinsky (Contact Author)

Stanford Law School ( email )

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Steven Shavell

Harvard Law School ( email )

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617-496-2256 (Fax)

National Bureau of Economic Research (NBER)

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