Replacing the Polluter Pays Principle with the Cheapest Cost Avoider Principle
New Horizons in Law and Economics series
Chapter 1: Introduction
Globalization in general and European integration in particular have created an economy based on the free movement of people, goods and services. Due to its high quality door-to-door service road transport plays a crucial role in this process. It has become an integral part of any logistics system and thus a vital production tool. But the use of roads does not only contribute to economic growth and prosperity, it also has negative side effects such as noise, the emission of pollutants, and environmental damage. These side effects are labeled ‘external effects’ (‘externalities’) and the costs associated with them – for example, costs of congestion, accidents, air pollution, noise and environmental damage – are called ‘external costs’. According to a generally held view, such external effects can lead markets to allocate resources inefficiently if they are not properly reflected in the market price of an activity, resulting in a problem usually named market failure. In order to get the prices right, that is to reflect the full social costs of an activity, external effects and the external costs associated with them should be internalized. In very general terms, internalization can be described as an intervention that leads a decision maker to face the full social costs, including both their private costs and the external costs of their actions. This means that costs that would otherwise be ‘external’ are taken into account by the decision maker and influence their decisions. There are different ways in which internalization can be achieved: whereas command-and-control policies regulate...