Abstract
Recently, the European Commission has issued the “Directive 2004/35/CE on environmental liability with regard to the prevention and remedying of environmental liability”. The Directive extends liability that usually refers to personal injuries and private property to harm where private property does not exist (e.g. biodiversity and endangered species). In these cases, problems with multiple causation and uncertain causation tend to be even more severe than for cases where solely private property is affected. Nevertheless, the otherwise very ambitious Directive remains silent about how to deal with these problems. We focus on uncertain causation and analyze second best optimal standards of proof in a model where benefits of risky activities are private information, and where the firm’s care level chosen to avoid the damage is only imperfectly observable. We derive three results: first, we characterize the factors determining the second best standards. Second, and conversely to the previous literature, high standards of proof such as proof beyond reasonable doubt can be second best optimal even though they lead to inefficiently low care levels. Third, legislators should leave discretionary power to courts which allows them to choose the standard of proof conditional on factors such as the degree of uncertainty over causation or the information quality about care levels as taken by injurers.
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Notes
See European Commission (1995, p. 5). Early empirical investigations in the process of the development of the influential German Environmental Liability Law (Umwelthaf-tungsgesetz, UHG) have shown that, before implementing strict liability, damages for environmental harm were almost never refused by the court because the plaintiff could not prove negligence, but because of a lacking proof of causation (see Feess et al. (1990). We are not aware of more recent empirical studies of the causality problem. Alberini and Austin (1999) provide an empirical comparison of strict liability and negligence for environmental harm in the USA, but they do not analyze causation problems.
For example, Rule P is the standard rule for civil law cases in common law countries, while rule B is often used in criminal law. Moreover, in Germany for example, rule B was also used in environmental liability law before the Environmental Liability Law (UHG) was enacted (see Sect. 2 below). In legal practice, typical probability thresholds would be 95%, and 50% for rules B and P, respectively. For the sake of our analysis, the exact numbers are irrelevant. Sometimes, “clear and convincing evidence” is required which can be interpreted as a threshold in-between those of rules B and P.
For example, such a low standard of proof can be established by reversing the burden of proof, and by demanding that the potential injurer proves beyond reasonable doubt that another source was responsible for the accident.
Our assumption that potential injurers perfectly anticipate the court’s decision in the subgame perfect equilibrium is strong, but not necessary. In fact, making the causation standard dependent on the circumstances of the case would also increase efficiency if there is at least some anticipation of the court’s behavior.
Other plants also listed in the law are excluded as “other circumstances” as this would make compensation impossible whenever more than one plant are potential causes. Moreover, liability is denied in cases of uncertain causation if the owner can prove that emissions have never been above the ones authorized, which in fact establishes a negligent standard in cases of uncertain causation.
Neither strict liability nor joint and several liability (JSL) are explicitly stated in CERCLA. However, Sec. 101(32) (42 USC § 9601(32)) refers to the regulation in the Clean Water Act which is always interpreted as implementing strict liability. Similar analogies hold for joint and several liability. See e.g. Barr (1993) or Clanton (1992) for a legal overview.
For a detailed discussion see e.g. Barr (1993), 972ff.
Bartsch (1997) considers environmental liability under uncertain causation in the sense of a stochastic damage function, but focuses on the usual trade-off between risk aversion and risk allocation.
We are very grateful to an anonymous referee for bringing this recent development to our attention.
See Barker v Corns (2006) UKHL 20 and Fairchild v Glenhaven Funeral Services Ltd (2003) 1 AC 32.
See Judgement of Dutch Surpreme Court (LJN AU6093). For the full text of the decision, see www.rechtspraak.nl.
See e.g. van Gerven (2004, Chap. 4.2.2).
We emphasize that all of our results generalize to the case where e can take on more than two values (including the case where it is continuous). The binary case is only considered for expositional reasons.
This reduced-form modeling approach can be rationalized by an extensive form model in which the accident probability is jointly determined by an (unobservable) nature’s move and the firm’s care level. See Schweizer (2006).
Our results do not hinge on the precise source of this uncertainty, and thus would remain unchanged for alternative specifications such as, for example, uncertainty over (a) how the court will evaluate the firm’s behavior (as in Kolstad et al. 1990), or (b) the relationship between precaution and accident probability (as in Diamond (1974)). All we need is that ex ante, and for a given care level, the firm faces some uncertainty about whether or not it will be held liable.
Of course, in a model with more than two care levels and signals (including the continuous case), an analogous interpretation of rule R would be that the firm is held liable only for a small subset of possible signals.
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Acknowledgments
We are very grateful to an anonymous referee for his valuable suggestions. Moreover, we thank Fernando Gomez, Ariel Porat, Hans-Bernd Schäfer, Urs Schweizer, Kathy Zeiler and participants of the 2006 Meeting of the American Law and Economics Association in Berkeley for helpful comments. G. Muehlheusser gratefully acknowledges financial support from the Swiss National Science Foundation as well as the hospitality of the Management & Strategy Department at Northwestern University’s Kellogg School of Management, where part of the paper was written.
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Feess, E., Muehlheusser, G. & Wohlschlegel, A. Environmental liability under uncertain causation. Eur J Law Econ 28, 133–148 (2009). https://doi.org/10.1007/s10657-009-9101-2
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DOI: https://doi.org/10.1007/s10657-009-9101-2