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EC238 (54)
Karen Huff (33)
Chapter 10

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Karen Huff

EC238 Chapter 10 – Liability Laws, Property Rights, Moral Suasion, Green Goods Week 6 Liability Laws -To be liable for some behaviour is to be held responsible for whatever untoward consequences result from that behaviour -Compensation requires that those causing the damage compensate those damages in amounts appropriate to the extent of the injury -Questions of liability and question are usually worked out in the courts -The courts will also decide the value of the damages -One approach to environmental issues is to rely on liability laws – this make polluters liable for the damages they cause -Liability laws can lead to the socially efficient level of pollution because they provide an incentive for polluters to reduce emissions so as to minimize their total costs – total abatement costs plus compensation to pollutees Liability Laws in Practice -Strict liability – holds people responsible for damages regardless of circumstances -Negligence – holds people responsible only if they did not take appropriate steps to avoid damage -Burden of proof requires injured parties to show: 1. That the polluting material was a direct cause of their damage, and 2. That the material did in fact come from the specific defendant that appears in court -The legal doctrine of standing is incompatible with the economist’s use of willingness to pay as a measure of value. Values established through legal cases may not fully represent the value people are willing to pay for environmental quality Transaction Costs -Transaction costs are the costs of reaching and enforcing agreements Property Rights -Property rights – an ownership right that conveys certain powers including exclusive use, transfer the right, or subdividing it to smaller parts -Private-property right – gives the holder exclusive rights to do what she or he wishes with the property owned – part of a river, piece of land, etc. -To solve the problem of lake pollution, it is necessary to specify clearly who has the rights of ownership to the lake -A socially efficient equilibrium can be reached regardless of the assignment of property rights. If the MAC and MC curves do not change based on who has the property rights, the same socially efficient equilibrium will be reached independent of who holds the rights to pollute -Net social gains are dependent on who has the property rights to environmental resources -Property rights – conditions for social efficiency: 1. Property
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