Edited by Jürgen G. Backhaus
Chapter 22: Environmental Law and Economics
A. Allan Schmid Law and economics has two contrasting approaches. One aspires to provide not only a positive theory of economic behaviour but also a guide to legal– economic policy choices. Efﬁciency and maximization of net economic product are claimed to be that guide (Faure, 1995). The second provides only a substantive description of the impacts of legal alternatives on different parties, with little attempt to aggregate them. These approaches will be contrasted with respect to several major legal questions concerning the environment, including the choice of injunction or liability as relief to injury, externalities and ownership, use of markets versus governmental regulation, and the takings issue. These will illustrate some of the theoretical and empirical ﬁndings in the environmental law and economics literature. What is the appropriate relief when an actor causes environmental injury to another? The case of Boomer v. Atlantic Cement Co. (Court of Appeals of New York, 1970, 26 N.Y. 2nd 219, 257 N.E. 2nd 870) is often used to illustrate the problem (see Goetz, 1984). A large cement plant created smoke, dirt and vibration which damaged neighbours. The court found that the activity created a nuisance and awarded damages, but not an injunction. Cooter and Ulen (1988) argue that law and economics can provide an authoritative answer to the desirability of damages versus an injunction which legal analysis alone cannot. The landmark literature here is Calabresi and Melamed (1972) and Polinsky (1980). The authors argued that efﬁciency points to the awarding of damages...
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