The Problem of Shared Social Cost
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Alan C. Marco
This paper presents a mechanism for regulating pollution when industry harm--but not individual firms' contributions--is observable. The mechanism is based on a modification of Cooter and Porat's Total Liability for Excessive Harm (TLEH). We propose an alternative mechanism of Shared Social Costs (SSC), where firms share the total cost of industry harm and abatement costs. In cases where the abatement costs for each firm are verifiable, SSC may provide an efficient alternative to TLEH. The mechanisms are largely equivalent, but require different types of information for the regulator. For a legal target to be set in TLEH, it requires either knowing the cost functions of individual firms or accommodating error costs by gradually reducing the legal target until the efficient level is found. On the other hand, SSC requires observing individual firms' actual abatement expenditures as opposed to knowing their cost functions. Both rules provide efficient incentives for abatement, and require being able to observe and monetize industry level harm. We show that SSC leads to efficient incentives for entry and exit, has appealing incentives for innovation, and can be applied advantageously to remediation. In markets with heterogeneous firms, we propose weighting cost-sharing by firms' market shares.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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- Prevention of Crime and the Optimal Standard of Proof in Criminal Law
- Does a Rise in Maximal Fines Increase or Decrease the Optimal Level of Deterrence?
- Benchmarks and Economic Analysis
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- The Problem of Shared Social Cost
- A Cost of Tax Planning
- Never Two Without Three: Commons, Anticommons and Semicommons
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- Protecting Private Property with Constitutional Judicial Review: A Social Welfare Approach
- Measuring Criminal Spillovers: Evidence from Three Strikes
- Corruption on the Court: The Causes and Social Consequences of Point-Shaving in NCAA Basketball
- Valuation of Quality of Life Losses Associated with Nonfatal Injury: Insights from Jury Verdict Data
- Belief in a Just World, Blaming the Victim, and Hate Crime Statutes
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- Crime, Business Conduct and Investment Decisions: Enterprise Survey Evidence from 34 Countries in Europe and Asia
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- Factors Affecting the Length of Time a Jury Deliberates: Case Characteristics and Jury Composition
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- The Effect of Endogenous Right-to-Work Laws on Business and Economic Conditions in the United States: A Multivariate Approach
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- Reporter's Privilege and Incentives to Leak
- Decision Analysis on Whether to Accept a Remittitur
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