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The rise and fall of the polluter-pays principle in developing countries

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  • Luppi, Barbara
  • Parisi, Francesco
  • Rajagopalan, Shruti
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.

Suggested Citation

  • Luppi, Barbara & Parisi, Francesco & Rajagopalan, Shruti, 2012. "The rise and fall of the polluter-pays principle in developing countries," International Review of Law and Economics, Elsevier, vol. 32(1), pages 135-144.
    • Handle: RePEc:eee:irlaec:v:32:y:2012:i:1:p:135-144
    DOI: 10.1016/j.irle.2011.10.002
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    References listed on IDEAS

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    1. Raja, A.V & Rathinam, Francis, 2005. "Economic Efficiency of Public Interest Litigations (PIL): Lessons from India," MPRA Paper 3870, University Library of Munich, Germany.
    2. Giuseppe Dari-Mattiacci & Gerrit De Geest, 2005. "Judgment Proofness under Four Different Precaution Technologies," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(1), pages 38-56, March.
    3. Hans-Bernd Schaefer, 2000. "The Bundling of Similar Interests in Litigation. The Incentives for Class Action and Legal Actions taken by Associations," European Journal of Law and Economics, Springer, vol. 9(3), pages 183-213, May.
    4. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-367, May.
    5. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
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    Cited by:

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    2. Jephcote, Calvin & Chen, Haibo & Ropkins, Karl, 2016. "Implementation of the Polluter-Pays Principle (PPP) in local transport policy," Journal of Transport Geography, Elsevier, vol. 55(C), pages 58-71.
    3. Josef Gotvald, 2024. "The role of environmental taxes and other political instruments on the road to climate neutrality [Role environmentálních daní a dalších politických nástrojů na cestě za klimatickou neutralitou]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2024(1), pages 47-76.
    4. Nadia Basty & Dorsaf Azouz Ghachem, 2022. "A Sectoral Approach of Adaptation Finance in Developing Countries: Does Climate Justice Apply?," Sustainability, MDPI, vol. 14(17), pages 1-18, August.
    5. Parisi Francesco, 2020. "Law and Economics as We Grow Younger," Review of Law & Economics, De Gruyter, vol. 16(1), pages 1-20, March.
    6. Dieter Schmidtchen & Jenny Helstroffer & Christian Koboldt, 2021. "Regulatory failure and the polluter pays principle: why regulatory impact assessment dominates the polluter pays principle," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(1), pages 109-144, January.
    7. Salvador García-Ayllón, 2019. "New Strategies to Improve Co-Management in Enclosed Coastal Seas and Wetlands Subjected to Complex Environments: Socio-Economic Analysis Applied to an International Recovery Success Case Study after a," Sustainability, MDPI, vol. 11(4), pages 1-27, February.
    8. Narong Kiettikunwong, 2019. "The Green Bench: Can an environmental court protect natural resources in Thailand?," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 21(1), pages 385-404, February.
    9. Meng Xu & Zhongfeng Qin & Yigang Wei, 2023. "Exploring the financing and allocating schemes for the Chinese Green Climate Fund," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(3), pages 2487-2508, March.
    10. Mizan R. Khan, 2015. "Polluter-Pays-Principle: The Cardinal Instrument for Addressing Climate Change," Laws, MDPI, vol. 4(3), pages 1-16, September.
    11. Massarutto, Antonio, 2020. "Servant of too many masters: Residential water pricing and the challenge of sustainability," Utilities Policy, Elsevier, vol. 63(C).
    12. Caiado, Nathália & Guarnieri, Patricia & Xavier, Lúcia Helena & de Lorena Diniz Chaves, Gisele, 2017. "A characterization of the Brazilian market of reverse logistic credits (RLC) and an analogy with the existing carbon credit market," Resources, Conservation & Recycling, Elsevier, vol. 118(C), pages 47-59.

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    More about this item

    Keywords

    Environmental protection; Polluter-pays principle; State liability;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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