Henry van Egteren

Environmental Regulations Under Simple Negligence or Strict Liability

We use negligence and strict liability as the basis for environmentalregulations and show that, when jurisdictions compete for firms that engagein environmentally risky behaviour, strict liability implements the sociallyoptimal outcome while simple negligence does not, even if the jurisdictionsfully cooperate in setting standards of care. Consequently, we argue that,even if jurisdictions delegate standard setting to a central authority, likein the European Union, this would not implement the socially optimaloutcome. We also demonstrate that harmonization of environmental regulationsmakes more sense if strict liability is used rather than simple negligence.

Interest Rate Smoothing and Financial Stability

Central banks smooth fluctuations in interest rates based on a belief that this policy promotes financial stability. This belief is based on a presumption that the direct effect of less interest rate volatility on a banks likelihood of insolvency is the predominant effect of this policy. The main point of this paper is that these policies also give rise to indirect effects that lower financial stability. These indirect effects occur because the policy itself alters bank behavior. In effect, if the central bank provides (liquidity) insurance (at zero premia), it may introduce a classic moral hazard problem that encourages risk-taking by banks. As a result, to maintain a given degree of financial stability, a bank regulator may, in fact, need to impose a higher prudential capital requirement when an interest rate smoothing policy is in place. The paper concludes that the link between interest rate smoothing policy and financial stability may be more complicated than is generally recognized.

Regulating an externality-generating public utility: A multi-dimensional screening approach

Abstract In this paper, I present a monopoly screening model in which a firm holds private information on fixed abatement costs. Because of the nature of the optimal contracts, bunching is never optimal even with ‘ n ’ distinct types. A characterization of full and limited information solutions is offered and it is shown that the design standards alone determine the value of an information rent. The variable charge is completely free of any marginal information costs. This allows the variable charge to track marginal damages and thereby ensures that marginal social costs are covered. A fixed charge implements the optimal solution.

State versus federal environmental regulation in a non-cooperative monopoly screening model

Abstract A multiple principal, monopoly screening model is presented in which two regulators act as rivals when setting a menu of contracts composed of a two-part pricing scheme and design standard. State and federal environmental regulation are modeled. We show that the firm prefers federal environmental regulation because the design standards are more stringent. This preference for stricter control occurs because higher standards generate higher information rents for the firm.

Regulating an Externality-Generating Utility Environmental Taxes Under Limited Information

Global warming is currently an important item on most nationalenvironmental agendas. In many countries, coal-fired electricity generatingstations represent an important source of greenhouse gases. We examinehow regulations to curb emissions affect public utility pricing regulationwhen regulators act non-cooperatively. We show that, when there is limitedinformation on fixed abatement costs, an environmental regulator prefersan emission tax over an output tax or a lump sum environmental tax. Thepublic utility regulator prefers the lump sum tax regime.Global warming is currently an important item on most nationalenvironmental agendas. In many countries, coal-fired electricity generatingstations represent an important source of greenhouse gases. We examinehow regulations to curb emissions affect public utility pricing regulationwhen regulators act non-cooperatively. We show that, when there is limitedinformation on fixed abatement costs, an environmental regulator prefersan emission tax over an output tax or a lump sum environmental tax. Thepublic utility regulator prefers the lump sum tax regime. Copyright Kluwer Academic Publishers 2002

Maxium Victim Benefit: A Fair Division Process in Transboundary Pollution Problems

We introduce a side-payment scheme, maximum victim benefit, that promotes ‘stable’ international environmental agreements. In developing this scheme, we incorporate the equity position that victims of pollution should benefit from pollution control. The result is a scheme which picks a unique element in the core; it maximizes the benefits to the victims of pollution and ensures that polluters are willing to join the scheme.

Environmental Liability and Harmonization in the Presence of Transboundary Effects and Hidden Assets

Within the context of transboundary disputes, this paper seeks to determine which liability concept, negligence or strict liability, performs better when assets are secure against foreign claims for transboundary damages. Our results indicate that, if assets are hidden from foreign claims, strict liability will not implement the socially optimal outcome, but neither will negligence. However, even though the socially optimal outcome is not always achieved, strict liability weakly dominates negligence. These results suggest that the harmonization of statues that deal with transboundary pollution should be based on strict liability not negligence.