INVESTMENTS AND ENVIRONMENTAL LIABILITY LAW
Keywords:
Compensation, (Corrected) Net Present Value, Cost of Damages, Emissions, Environmental Liability Law, Environmental Protection, Financial Valuation, Imperfect Markets, Investment Assessment, Liability, Price Ceiling, Production Planning, UncertaintyAbstract
According to the ―polluter pays‖ principle, environmental liability law allows for internalisation of the cost of pollution. In order
to adjust to these policy instruments under the conditions of imperfect markets, this paper presents an approach to valuing
investments in environmental protection technologies and to examining the determinants of their price ceiling. The latter
depends on the (corrected) net present values of the payments and on the interdependencies arising from changes in the optimal
investment and production programmes. Though we can confirm the well-established results of environmental economics for a
single investment, tightening environmental liability law may have counterproductive effects on investments in environmental
protection technologies. In effect, all the (sometimes contradictory and unexpected) consequences of such policy changes can be
interpreted in an economically comprehensible manner
