Extending the Duty of Care: Resource Management and Liability

In this paper we examine the Duty of Care concept as it may be applied to land management in Australia. We show that the efficiency case for extending the Duty of Care owed by farmers to correct off-farm environmental costs is weak. The economic issues of what conservation should be carried out and who should carry out the conservation need not be linked to the subjective question of who should pay. Where transaction costs are high, significant costs may be created by following notions of Polluter Pays rather than following the principle of equating marginal costs of conservation across all sources with the marginal benefits of conservation. Where transaction costs are low, the socially optimal level of conservation can be achieved when one party is made liable regardless of whether they are the cause of the damage or not.