Legal institutions, environmental protection, and the willingness-to-accept measure of value

This paper looks at the US legal system and negative environmental external ities. I provide a positive explanation for the role of courts in environme ntal disputes using the willingness-to-accept (WA) measure of value. I furt her suggest that environmental law has aided courts in attaining a new welf are standard, WA-efficiency. The explanation offered here contrasts with th ose found in Law and Economics because I propose that courts are not substi tutes for markets and, as such, one of their important roles may be to effi ciently redistribute entitlements. The analysis is formalized with a model in which the court allows a victim of pollution to exert a credible threat against a polluter, which results in increased social welfare-even beyond w hat would exist in a zero transaction cost world. I also investigate when l egal policy based on WA-efficiency is appropriate, and suggest that the ans wer may hinge on Rawl's notion of primary goods. (C) 1999 Elsevier Science B.V. All rights reserved.