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The Law and Economics of the Environment

Edited by Anthony Heyes

This outstanding book focuses on how economics can contribute to the design, implementation and appraisal of legal systems that create the ‘right’ incentives for environmental protection. The sixteen original and specially commissioned contributions – written by some of the leading names in their field – span many of the important areas of contemporary interest and employ case study material combined with theoretical, empirical and experimental research.
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Chapter 13: International harmonization of environmental law: theory with application to the European Union

Marcel Boyer and Donatella Porrini


12. Law versus regulation: a political economy model of instrument choice in environmental policy Marcel Boyer and Donatella Porrini* INTRODUCTION From a law and economics point of view, the regulation of environmentally risky activities is an alternative to a system of liability assignment. ‘Regulation and tort law are alternative methods (though often used in combination) for preventing accidents. The former requires a potential injurer to take measures to prevent the accident from occurring. The latter seeks to deter the accident by making the potential injurer liable for the costs of accident should it occur’ (Landes and Posner 1984: 417). In this chapter we shall review and characterize, in an incomplete information political economy framework, the conditions under which an environmental regulation approach is superior to an environmental liability one. We develop here a formal analysis of the comparison between different policy instruments to implement a given set of environmental protection objectives,1 including a political economy explanation of the choice of instruments.2 The first instrument we consider is the assignment of a CERCLA type liability,3 that is, a strict, retroactive, joint and several liability on the owners and operators of the firm responsible for a catastrophic environmental disaster. More precisely, we model an extended lender liability rule whereby private banks financing the responsible firm are considered as liable operators if the latter is unable to cover the damages and compensation from its own assets. The second instrument in our comparison consists in a regulation framework. After the environmental legislation...

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