The Rise and Fall of the Polluter-Pays Principle in Developing Countries

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.

Polluter-Pays-Principle: The Cardinal Instrument for Addressing Climate Change

“…Luppi et al [7] cite, as a footnote, in The Dialogues of Plato: The Laws [8] the celebrated passage by Plato: "If anyone intentionally spoils the water of another…let him not only pay for damages, but purify the stream or cistern which contains the water". We can cite some passages from another celebrated Indian philosopher Kautiliya, who lived more or less at the same time of Plato.…”

“…There are different rationales or interpretations of the PPP, of which the following four can be cited as the most common: an efficiency argument, an equity argument, a judicial/legal argument and a pedagogical argument [7,[17][18][19][20]. Cost internationalization of negative externality as its core meaning is meant for efficient allocation of resources.…”

“…Thus, there is a built-in incentive for R&D for new technology. The judicial/legal interpretation of the PPP holds that states and local governments are jointly and severally liable for environmental damage caused by parties, either private or public, allowing the public regulatory agencies to act in "sub-rogation" against industrial polluters [7]. In addition to this, Nash [20] argues that there is a pedagogical argument for this principle, both for the producers and consumers: both these groups are instilled with a sense of responsibility about the pollution load that they generate either through production or consumption of the goods and services.…”

The Economic, Social, and Environmental Sustainability of Brazil Applied to Holding Eletrobras on Hydroelectric Power Generation Segment

“…Repair of environmental damage caused by human intervention is a mechanism on the motivation that includes some important tools for the sustainable development as are the cases of the polluter-payer principle (Luppi, Parisi, & Rajagopalan, 2012;Munir, 2013;Brandt & Svendsen, 2014), the principle of protective recipient (Ribas, 2013;De-Paulo, 2013), the trade-off or "compensatory exchange" (Meensel, Lauwers, Huylenbroeck, & Passel, 2010;J. Zhang, M. Fu, Z. Zhang, Tao, & W. Fu, 2014;Blandford, Gaasland, & Vårdal, 2014;Akter, Graftonb, & Merritt, 2014) and the tax incentives, among others (Nesta, Vona, & Nicolli, 2014;Martinez-Espiñeira, García-Valiñas, & Nauges, 2014;Allan, Lecca, Mcgregor, & Swales, 2014).…”

Deforestation and Haze in Malaysia: Status of Corporate Responsibility and Law Governance

“…However, it is noteworthy to highlight that there have been scepticisms on the polluter pays principle to be applied in its entirety to impose liability on the responsible party for harm and damage on the environment (Luppi et al, 2011;Cordato, 2001). …”