ON THE SUPERIORITY OF LIABILITY RULES IN ENVIRONMENTAL LITIGATION.

A variety of contemporary external cost situations are characterized by the small number of affected parties involved. In resolving externality situations characterized by small numbers, much of the theoretical literature has addressed the relative merits of the collective authority using a property rule or imposing liability rules. While the consensus of previous analysis is that a clear-cut case for one approach or the other cannot be made, it is argued here that under plausible assumptions, liability rules will generally be superior on both efficiency and equity grounds.