RT Journal Article
SR Electronic
T1 Market Power in the Eco-industry: Polluters’ Incentives under Environmental Liability Law
JF Land Economics
JO Land Econ
FD University of Wisconsin Press
SP 121
OP 138
DO 10.3368/le.88.1.121
VO 88
IS 1
A1 Endres, Alfred
A1 Friehe, Tim
YR 2012
UL http://le.uwpress.org/content/88/1/121.abstract
AB This paper analyzes the output and abatement choices of perfectly competitive downstream polluters who are subject to environmental liability law and procure abatement from an imperfectly competitive eco-industry. Under strict liability, polluting firms choose suboptimal abatement, but socially optimal output given abatement. Under negligence with firm-specific abatement standards, polluting firms choose suboptimal output but socially optimal abatement given output. Under negligence with industry-wide abatement standards, the output and abatement choices of most firms are socially suboptimal. Second-best considerations are offered for each case. Under strict liability (negligence), these apply to the level of liability (the behavioral standard). (JEL H23, Q58)