Environmental liability, imperfect information and multidimensional pollution control

The paper looks at the preventive pollution control induced by a negligence rule in a situation of imperfectly observable two-dimensional pollution control. When pollution control efforts are imperfectly observable to differing degrees, a standard of negligence distorts the choice among different strategies in reducing environmental risk. This distortion can be attributed to two effects: immunization from liability and sharpening of incentives for observable precaution. Hence, in contrast to one-dimensional precaution, uncertainty in verifying the negligent behavior may improve incentives to take preventive pollution control measures. This implies that asymmetric information in assessing compliance to the standard of due care might not constitute a serious problem for environmental liability. (C) 1997 by Elsevier Science Inc.