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Product Liability and Innovation: Managing Risk in an Uncertain Environment
abating hazardous wastes "through tax and reimbursement liability" (State of New York v. Shore Realty, 759 F.2d 1032, 1041 [2d Cir. 1985]).
Incentive schemes require a fundamental rethinking of the relationship between tort law and statutory law. Following the conventional wisdom of economists and policy analysts, regulators have begun to use incentives and subsidies to affect behavior in lieu of command-and-control standards. The Environmental Protection Agency has experimented with "bubbles," "offsets," and ''banking." The 1990 Amendments to the Clean Air Act seek to control acid rain through a system of tradeable pollution rights (Clean Air Act of 1990, §§ 403–405). Similar proposals exist to pay workers to use protective devices under the Occupational Safety and Health Act and to establish marketable rights for water pollution.
How should courts handle claims by defendants that incentive-based regulatory statutes preempt tort actions? Judges who view regulation as confined to standard setting might allow tort actions on the ground that these statutes are not "regulatory" because they do not establish uniform standards but "only" create incentives. Yet the argument for preemption of tort law is even stronger in the case of incentive-based regulations than in the case of command-and-control regulation. With standard setting based on either technology or performance, tort actions can complement regulatory agency activity if agency enforcement is not comprehensive or if the fines levied bear little relationship to damages. In contrast, a well-designed incentive system signals to a firm the social costs of its activities. A fee system resembles a tort liability system: No fixed standards are set, but firms respond to the cost of damages. The regulated entity must purchase the right to impose social costs in the same way that a tort judgment requires payment for harms. The main difference is the comprehensiveness of a fee schedule, which the state sets so that all firms are covered. A firm's liability does not depend on the contingency of private litigation and jury damage awards.
If fee schedules are set to reflect the social costs of the regulated firm's activities, then tort actions would be redundant at best and counterproductive at worst. Tort judgments would undermine such a regulatory scheme, especially if courts applied a strict liability standard, the type of standard that some judges have found least "regulatory" (Silkwood v. Kerr-McGee, at 276 n.3). Thus, incentive-based statutes should include a provision clearly preempting tort actions. For example, if the Environmental Protection Agency charges effluent fees, those damaged by the discharges that occur should not be able to sue since this would create inefficient care-taking incentives on the margin.
The only role for lawsuits by private individuals would be to force the agency to enforce its own rules; such suits might permit private recovery of damages for harm caused by lax enforcement. For example, the Consumer