Environmental policy making: liability for externalities in the presence of transaction costs
Environmental law that favors the victim of pollution against the polluter has some theoretical justification. For depletable externalities, this originates from the important asymmetries between free riding and holding out and from the physical nature of several externality problems. For a large class of pollution examples, however, where the externality is undepletable, no market can achieve a Pareto optimal allocation. Market solutions are useless in these cases if efficiency is the criterion for the allocation of liability. In a real-world context, very high transaction costs remove the justification for any rule, and the possibility of asymmetry in pollution costs could be used to support laws that favor the polluter. The efforts of policymakers should be directed towards more careful assessment of the likely costs and benefits of polluting activities and of the distributional and ethical dimensions. 13 references, 3 figures.
- Research Organization:
- Univ. of Stirling, Scotland
- OSTI ID:
- 6715877
- Journal Information:
- Nat. Resour. J.; (United States), Vol. 20:3
- Country of Publication:
- United States
- Language:
- English
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