- Legal and market uncertainty in market-based instruments: the case of the EU ETS
- New York University Environmental Law Journal
- Pages (from-to)
- Document type
- Interfacultary Research Institutes
Faculty of Law (FdR)
Faculty of Economics and Business (FEB)
- Amsterdam Center for Law & Economics (ACLE)
Amsterdam Business School Research Institute (ABS-RI)
Parties in litigation may experience legal uncertainty, which can spread into markets. If so, there are relevant and pervasive consequences for unrelated third parties. We argue that certain types of legal remedies cause the transformation from legal uncertainty into ‘market uncertainty’. This problem is particularly important for ‘artificial markets’, such as those created by the legislator for the purposes of market-based regulation, e.g. the European Union Emission Trading System ("EU ETS"). Specifically, market uncertainty is a likely consequence of the use of restitutio in integrum (a property-rule remedy) as opposed to the use of damages (a liability-rule remedy). Recent litigation within the EU ETS provides a clear example of both the mechanisms of transmission of legal uncertainty to the market and of its causes. We identify the costs of letting legal uncertainty turn into market
uncertainty and examine possible solutions to this problem.
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