Proposition 1. Under strict liability with Z = Z, polluters will choose
(i) too little (much) abatement and investment in R&Dif compensation
is less than (exceeds) environmental harm and Cxαb0 ∀x.
(ii) too little abatement but excessive investment in R&D if compensation
is less than environmental harm and CxαN0 ∀ (xDSL(Z),αDSL
(Z)), Z∈½1; Z.
(iii) excessive abatement but too little investment in R&D if compensation
exceeds environmental harm and CxαN0 ∀ (xDSL(Z),αDSL(Z)),
Z∈½Z; 1