Environmental regulations under simple negligence or strict liability

We use negligence and strict liability as the basis for environmental regulations and show that, when jurisdictions compete for firms that engage in environmentally risky behaviour, strict liability implements the socially optimal outcome while simple negligence does not, even if the jurisdictions fully cooperate in setting standards of care. Consequently, we argue that, even if jurisdictions delegate standard setting to a central authority, like in the European Union, this would not implement the socially optimal outcome. We also demonstrate that harmonization of environmental regulations makes more sense if strict liability is used rather than simple negligence.