Environmental Liability Law and Induced Technical Change – The Role of Discounting

We analyse the incentives of environmental liability law for inducing progress to emission abatement technology. We consider three liability rules: strict liability, a negligence rule with an emission norm as the due care standard, and a double negligence rule which combines the emission standard with an abatement technology norm. In the case of distortive discounting, i.e. where the private discount rate deviates from the social one, we show, how the level of distortion influences the ranking of liability rules, according to the criterion of generated social cost.