Econ 260 Chapter 10
Liability Laws, Property Rights, Moral
Suasion, Green Goods
• This chapter is about ways citizens can deal
with environmental problems with minimal
Liability laws people solve
problems through the courts
Property rights people solve
problems by negotiating with
Moral suasion people try to
persuade others to change their
Green goods people can buy
or sell goods that help the
1 Liability Laws
• People who harm the environment are held
liable for their actions according to established
laws the perpetrator(s) must pay for damages
• People who incur damages must take the
perpetrator to court.
A dam breaks near Oliver, BC, causing a
• 3 homes destroyed
• 14 agricultural properties can no longer be
• Damages not covered by home insurance
Liability laws can mean that whoever is
responsible should have to pay.
It is not, however, always clear who is
2 From CBC news:
“Elkink [the land’s leaseholder] said he is not worried about the
liability, because the lake is on provincial Crown land, and
many agencies and the public used the road across the dam. As
well, many groups contributed to it's maintenance, he said.
Provincial officials see it differently, saying Elkink's company is
responsible for the maintenance and inspection”of the dam.
A pulp and paper factory damages the local salmon
• Without any liability laws, the polluter will
emit E maxbecause he/she has no reason to abate.
• The salmon fishery incurs costs of total
damages at E max= a + b + c
3 • A liability law would require the polluter to
compensate the fishery by the amount a + b + c
• For the polluter MD = marginal compensation
and TD = total compensation costs.
• The polluter can choose to either pay a + b + c
or reduce emissions, thereby paying abatement
costs but less TD.
What will the polluter choose to do?
• At E maxthe marginal cost of compensation is
higher than the marginal abatement cost, so the
polluter will abate as long as MD ≥ MAC, or
until MD = MAC.
• The polluter minimizes costs at E*.
• Total costs to the polluter = TD + TAC = a + b
4 Things to consider:
• There are two types of liability laws: strict
liability and negligence liability.
Strict liability means the perpetrator is
responsible no matter what the
Negligence liability means the perpetrator
is only responsible if they were not doing
everything possible to prevent the damage.
BP oil spill in the Gulf of Mexico
The U.S. Migratory Bird Treaty Act states that BP
would be liable for damages to birds, even if
damages were accidental strict liability
The U.S. Clean Water Act states that the government
would have to show negligence in order to seek
compensation for damages negligence liability
5 Example 4:
Over 200 ducks died recently in Northern Alberta
when they landed in the Syncrude oil company’s
tailings pond (left over water from separation
process for oil sands – contains toxic bitumen).
From the Globe and Mail:
“An ice storm may have forced the birds to seek refuge on the
pond, despite the presence of advanced radar and sound cannon
The Alberta government must decide whether or not
Syncrude was being negligent or if the ice storm was
the sole cause.
If Syncrude is found to not have been negligent
they will not have to pay for damages.
6 Issues with Liability Laws
1. Who bears the burden of proof?
• Do polluters prove they did not cause damage,
or do pollutees (the injured party) prove they
• In Canada, it is up to the pollutees to prove
pollution caused damages and prove who is
responsible for the pollution.
• Potential problems:
Proving the pollutant caused damage.
Sometimes a causal link can be difficult to
Example: Do salmon farms harm wild
Sea lice and pesticides flow
through the net into the ocean,
possibly harming wild
salmon, but nothing has been
Proving who is at fault.
• Oliver mudslide example
• Non-point source pollutants make
for difficult cases since the source is
7 2. Courts and economists have different ideas of
value –standing vs willingness to pay.
o WTP can be any value, big or small.
o Courts will only hear cases in which the
damage is a significant value, otherwise the
case does not achieve standing.
3. Transaction Costs:
o Your neighbour’s dog is
driving you crazy – would
you take your neighbour
can be expensive!
o What would transaction costs include?
Costs of gathering evidence
o The more difficult it is to prove, the more
costly it will be.
• Liability laws work best if few people are
involved, causality is clear, and damages are
easy to measure.
8 Property Rights
The establishment of property rights can allow
people to solve problems through negotiation.
When a person or group of people have property
rights over an environmental good the owner(s)
have the authority to make decisions about the use
or maintenance of the property.
The owner(s) pay all costs to maintain the
environmental good, but also retain all the benefits.
E.g. Butchart Gardens in Victoria, BC
Establishing property rights over the environment
has two main requirements:
1. Defining boundaries:
Easy for land, not so easy for water or air.
9 2. Deciding who has the rights:
For land it is whoever purchased the
For water or air the question might be does
a polluter have the right to pollute, or do
the pollutees have the right to a clean
• If these two requirements can be met, property
rights can help ensure an efficient use of
resources or level of emissions.
Property owners consider all the costs and
benefits of their actions toward their
If they take care of their
property and invest in it,
they will be rewarded by a
higher valued property.
If they do not take care of
their property it will lose
A chemical factory and a fishery are located on a
lake. Emissions from the chemical factory are
causing the fish to die.
• If one person owned both the chemical factory
and the fishery, what level of emissions would
E* because they would pay TD + TAC,
which is minimized at E*.
• What happens if the two businesses are owned
by two different people?
It must be established which business has
the “rights” to the lake, the polluter or the
Whoever has the rights has the authority to
decide on the allowable level of emissions.
11 If the chemical factory, the polluter, has the
right to pollute they will choosemax
If the fishery, the pollutee, has the rights
they will choose E = 0.
At that point the business without the
rights can offer compensation in exchange
for a change in the level of emissi