Economics and Liability for Environmental Problems

This volume asks "what is environmental liability"? It discusses event-based pollution problems, suggesting that in such cases environmental policy instruments can take either the "ex-ante" policy forms such as taxation, or "ex-post" policy instruments - compensation, for example. Environmental liability is an example of an ex-post policy instrument, under which a party responsible for contamination becomes liable for the damages. The papers in this volume suggest the following conclusion regarding the role of liability as a means of reducing environmental risks. In principle, liability has the potential to create strong incentives to reduce environmental risks through increased precaution and reduction in risky activities. However, this potential will be realized only when the likelihood that a responsible party will actually pay for the damages from his negligent behaviour is sufficiently high. The incentive effects of liability are often reduced as a result of the nature of the risk, the nature of the polluter, the constraints on the use of legal system, or the design of the liability policy. While liability rules can be designed to reduce these disincentive effects, it is likely that the joint use of liability and safety regulation will lead to mor eeffective reduction of environmental risks than the use of liability alone.