Abstract
The polluter-pays principle stipulates that the person who damages the environment must bear the cost of such damage. A number of developing countries have recently extended this principle to create an obligation on the state to compensate the victims of environmental harm. This variation of the polluter- pays principle is aimed at ensuring victims’ compensation when polluters cannot be identified or are insolvent and at providing stronger incentives for local governments’ monitoring of environmentally risky activities. These regimes hold local governments primarily or jointly-and-severally liable for environmental damage and allow them to act in subrogation against the polluters. In this paper we study the effect of these forms of governmental liability on the polluters’ incentives and on aggregate levels of environmental harm. We develop an economic model to study the conditions under which governmental liability may be preferable to direct polluters’ liability as an instrument of environmental protection. We conclude by suggesting that these variations of the polluter-pays regime may be desirable in environments characterized by widespread poverty, high interest rates, judicial delays and uncertainty in adjudication.
Highlights
The idea that a polluter should pay for the environmental harm it causes is well-rooted in Western legal history.1 In present times, the polluter-pays principle stands as an international guideline for environmental policy stipulating that the person or firm who damages the environment must bear the cost of such damage
We shall consider a recent trend observed in developing countries such as India, Malaysia, Taiwan, Ecuador, Chile, Costa Rica, Kenya, and South Africa, who adopted a variation of the polluter-pays principle through judicial, legislative, and constitutional reforms focused on mitigation of harm through governmental liability
These judicial and legislative reinterpretations of the polluter-pays principle hold states and local governments jointly-and-severally liable for the environmental damage caused by private parties, allowing these public bodies to act in subrogation against the individual polluters when possible
Summary
The idea that a polluter should pay for the environmental harm it causes is well-rooted in Western legal history. In present times, the polluter-pays principle stands as an international guideline for environmental policy stipulating that the person or firm who damages the environment must bear the cost of such damage. We shall consider a recent trend observed in developing countries such as India, Malaysia, Taiwan, Ecuador, Chile, Costa Rica, Kenya, and South Africa, who adopted a variation of the polluter-pays principle through judicial, legislative, and constitutional reforms focused on mitigation of harm through governmental liability. These new regimes purportedly ensure victims’ compensation when polluters cannot be identified or are. We compare the government’s monitoring levels and the firms’ care levels under the alternative polluter-pays and the government-pays regimes.
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