Fixing legal liability for air quality
Revealing a ghoulish sense of humour, a friend recently remarked that with pollution levels exceeding those on Diwali night, Delhi was enjoying an extended spell of the festive season. For game theorists, however, the abysmal air quality in Delhi in the aftermath of straw burning by farmers of neighbouring states is a situation involving injurers and victims, and not very different from a car wreck. This framework is used to work out efficient liability rules.
Efficiency dictates that if the cost of ameliorative measures undertaken by farmers reduces the harm inflicted in neighbouring states (assessed in monetary units) by an amount greater than the said cost, then those measures must be taken. Similarly, the affected parties must adopt measures whose cost is lower than the resultant reduction of harm caused by straw smoke, provided such measures exist. What liability rules would incentivize such actions?
It is obviously possible to find ways of disposing straw which would reduce the harm inflicted by a monetary value that is greater than the cost involved. It is not quite clear if there are similar measures at the end where impacts are being felt. The mass distribution of masks and air purifiers would impose too high a cost in comparison to the relatively trivial reduction of harm that results. Consequently, should the farmers of states adjoining Delhi be legally bound to dispose straw differently and should they be liable to pay for our lifetime medical expenses from the various bronchial problems we contract in case they don’t?
This conclusion must be subject to two caveats. First, the yardstick of efficiency is incomplete as it fails to take into account considerations of equity, or political economy. With the farming sector in the doldrums, imposing further costs on farmers in the form of a “straw obligation” is both iniquitous and politically infeasible. Hence, the costs have to be borne by the revenues of state and central government, with the relative contributions of each to be suitably determined.
If we accept that the corrective measures have to be financed by tax revenue, then a second caveat must be made. Normally, any discussion of the care exhibited by the injurer (for example, to drive below the speed limit) or the victim (to walk on the pavement, if any) must take place in the context of the specific episode in question. It would be ludicrous to argue that the obligations of the motorist should be mitigated if the victim failed to take adequate precaution in an entirely unrelated case, even if they were fully compliant in the present instance. This is because in each case, responsibilities are privately borne and must be worked out on a case by case basis.
But when the costs are defrayed through scarce government revenues, then we must ask if there could be other uses of the tax money that would bring about a greater benefit to the overall health of the beneficiaries than the proposed measures on the disposal of straw. After all, while the PM10 levels peak in this season, they are three-five times the threshold of the level considered safe for most of the year without any assistance from straw blowing in the wind.
Treating all the governments involved—including the Delhi government—as one entity, if we find that the most cost-effective use of government funds involves a combination of measures internal to Delhi along with finding alternative ways to dispose of the straw, the problem becomes far more interesting. Not only is the injurer obliged to take preventive measures but so are the victims, or more pragmatically speaking, their government. Should the Badarpur power plant in Delhi be closed down? Should the movement of trucks be curtailed? And if the due level of care is not shown, does the injurer in the straw burning case still have to pay?
With the injurer and victim both having two choices—taking due care, or being negligent—we have four possibilities: both are non-negligent, both are negligent, the injurer alone is negligent, and the victim alone is negligent. Liability rules can be distinguished based on their recommendation in each of these four cases.
Under the rule of negligence, the injurer is liable for all the harm to the victim if and only if it is negligent. This implies that the farmers are liable in case of negligence and their governments have to bear the cost of the harm inflicted whether or not the Delhi government has taken due care or not.
Under the “negligence with the defence of contributory negligence” rule, the victim bears his loss in all cases excepting one, when the victim is non-negligent and the injurer is negligent. Given that the Delhi government cannot be said to have taken due care with respect to the things it could have done, this rule would absolve the governments of neighbouring states of any liability.
A remarkable theorem proved by Satish Jain and Ram Singh in the Journal Of Economics, 2002, establishes that any of the rules mentioned above and a whole lot of other rules besides would incentivize efficient outcomes (as defined above). On the other hand, the strict liability rule that specifies payment by the injurer irrespective of the action of the victim and the no-liability rule would fail to achieve efficiency.
In sum, from the viewpoint of efficiency, we only require that whenever one party is negligent and the other non-negligent, then the entire loss resulting from interaction must be borne by the negligent party. All parties would then take the due level of care, making for mercifully short festive seasons.
With inputs from Prof. Satish Jain.
Rohit Prasad is a professor at MDI Gurgaon, and author of Blood Red River. Game Sutra is a fortnightly column based on Game Theory.
Comments are welcome at firstname.lastname@example.org