Liability Rules Subsidies and Recylcing

Liability Rules Subsidies and Recylcing - Pigouvian...

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Pigouvian Subsidies A subsidy is a bonus or a payment for doing something, the opposite of a tax. A Pigouvian Subsidy is a per unit payment equal to the marginal external social benefits to reducing pollution at the social optimum. In the short run has same efficiency effects as a tax, although equity effects are different. Whereas the polluter has to “buy the right” to pollute the subsidy assumes that the polluter has the right or privilege to pollute and has to be bought out. Problem in the long run: increases profitability of polluting industry, and may possibly attract entrants and thus increase pollution
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Liability Rules Liability provisions related to the management of environmental quality can either arise from the common law of torts or from statutory laws that impose particular liabilities for particular events on classes of parties. Ex post these provisions result in the collection of damages or restoration costs or both when an act is committed or an event happens. Ex ante the (uncertain) prospect of paying the damaged or restoration
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This note was uploaded on 12/20/2010 for the course AEM 25 at Cornell.

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Liability Rules Subsidies and Recylcing - Pigouvian...

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