Tolerance limits and temporal priority in environmental civil liability

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Tolerance Limits and Temporal Priority in Environmental Civil Hability ENDRE STAVANG

Institute of Private Law, University of Oslo, Norway E-mail:endre,stavang@jus, uio. no I. Introduction T h e g o a l o f t h i s p a p e r is to i n t e r p r e t t h e r e q u i r e m e n t o f u n r e a s o n a b l e o r u n n e c e s s a r y p o l l u t i o n i n l i g h t o f its i m p l i c a t i o n s f o r r e s o u r c e a l l o c a t i o n . T h i s i s s u e is r a i s e d b y t h e following Norwegian statutory expression: "Compensation f o r p o l l u t i o n t h a t is p e r m i t t e d c a n b e c l a i m e d o n l y t o t h e e x t e n t t h a t s u c h p o l l u t i o n is u n r e a s o n a b l e o r u n n e c e s s a r y i n t e r m s o f t h e p r o v i s i o n s i n § 2, s e c o n d t o f o u r t h p a r a g r a p h s , o f A c t N o . 15 o f J u n e 16 1 9 6 1 r e l a t i n g t o l e g a l c l a i m s b e t w e e n n e i g h b o r s . ''1 E n v i r o n m e n t a l civil l i a b i l i t y w a s s u b j e c t t o a m a j o r r e f o r m i n 1 9 8 9 , g i v i n g t h e l e g i s lative history of tolerance limits in Norway three evolutionary ages: birth (1840-1887); codification (1946-1961); and reform (1974-1989). Throughout this modern history, t h e i n t e r p l a y b e t w e e n c a s e - b y - c a s e a d j u d i c a t i o n a n d its r a t i o n a l i s t i c c r i t i q u e c a n b e traced, providing an interesting backdrop for judging contemporary perspectives. One contribution o f t h e p a p e r is to e x p o s e t h e i n t e r s e c t i o n b e t w e e n t e m p o r a l

Much of this paper has been written at the Center for Advanced Study, The Norwegian Academy of Science and Letters in Oslo, whose support and excellent working conditions are gratefully acknowledged. For comments, thanks to Roger Bowles and other participants at the 1996 EALE Conference, two anonymous referees, and to Ian Ayres, Erling Eide, Robert C. Ellickson, Alvin Klevorick, Josip Kregar, Tone Ognedal, Gideon Parchomovsky, Christian Riis, Erik Ros~eg, and Hans-Bernd Schiller. IThis language in § 56 of the Pollution Control Act about tolerance limits makes an exception to a basis for comprehensive strict liability, which seems to follow from § 55. The text clearly qualifies the principle of strict liability by setting tolerance limits for all permitted pollution. How far reaching the qualification is depends upon how much pollution is permitted. Pollution may be permitted through general regulation or through individual permission. For instance, most industrial pollution in Norway is permitted [N~ess (1993)]. The level of tolerance limits is set by the expression "unnecessary or unreasonable," combined with a set of four interpretive principles or statutory guidelines in Act No. 15 of June 16, 1961 relating to legal claims between neighbors (Neighbor's Act). The first guideline is that due weight shall be given to what is technically and economically possible to do to prevent or limit the harm. The second guideline is that due weight shall be given to whether it is worse than that which usually follows from normal use or operational methods in such places. The third guideline is that due weight shall be given to whether it is likely to accord with the usual conditions obtaining in the locality. The fourth guideline says that something may be unreasonable pollution even if expectable or normal, if it leads to a substantial deterioration for a distinguishable group. The guidelines are further discussed in Section III below. International Review of Law and Economics 17:553-574, 1997 © 1997 by Elsevier Science Inc. 655 Avenue of the Americas, New York, NY 10010

0144-8188/97/$17.00 PII S0144-8188(97)00037-9

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priority 2 and tolerance limits. By focusing especially on the role of temporal priority within a system of tolerance limits, the ambition is to better understand a narrow, but important, aspect of current law. In addition, an analytical description of the relevant Norwegian legal sources is provided. In this process, the paper utilizes and contributes to the literature and tradition of economic analysis of law. An underlying thesis is that legal economics can improve the way lawyers talk about doctrine, and the way we criticize or propose reform. Moreover, the goal of efficient resource allocation will be defended as an important evaluative standard in this area. The reason for focusing on the requirement of unreasonable or unnecessary pollution is that it determines the extent of environmental civil liability. Further, although temporal priority is recognized in Norway as an important consideration in determining civil liability, it is uncertain how central temporal priority is in a descriptive account of the law. At the legal policy level, there is little analysis based on clear evaluative criteria. Although consensus about the relevance of efficiency arguments in environmental law and policy is emerging, there is still debate in Norway and in other legal systems as to the proper role and structure of environmental civil liability. 3 The perspective of legal economics may provide some guidance to this practical problem of determining environmental liability. This paper argues that there is tension between the standard of unreasonable pollution and the idea of temporal priority at the doctrinal and legal policy levels, and that judges (and their advisors and critics) should apply the theories identified here when they give content to the requirement of unreasonable or unnecessary pollution in the future. Even though attention is directed to a specific jurisdiction, a c o m m o n interest should lie in finding ways tO apply theoretical perspectives to legal problems. 4 Moreover, the relationship between a balancing approach and a bright line temporal priority approach to tolerance limits is a general issue, and is not confined to a particular jurisdiction. 5 Although this paper incorporates an instrumental way of looking at environmental civil liability, the problem stated at the outset remains connected to the role of judges, or their advisors and critics. Outside the focus of this paper is the question of expanding or contracting environmental civil liability substantially through legislative reform [see, for instance, Dewees (1992); Rose-Ackerman (1996); and Ott and Schiller (1996)].

ZThis term is a translation of the term "tidsprioritet," which is in use in Norwegian legal litterature, and the concept is explained in Section IV below. SWithin the Nordic legal systems, see for Sweden, Bengtson (1993). For the European Union, see Green Paper (1993). 4On a theoretical level, the topic of this paper already has been studied and commented upon extensively ti'om various perspectives. For instance, the meaning of rules and standards has been studied by, among others, Eckhoff (1976). In addition, the consequences of rules and standards have been studied by, among o t h e r , Johnston (1995). Such theoretical contributions seem highly relevant to any study of tolerance limits and temporal priority. 5Many legal systems adopt a requirement of unreasonable pollution in their civil liability systems. Most prominently, the principle of reasonable harm has been applied as international customary law, see the Trail Smelter case between Canada and the United States (1938 and 1941), Reports of International Arbitral Awards, United Nations, pp. 1906-1982. In addition, unreasonable pollution can also be an element in international treaties. In Europe, for instance, a new convention on environmental civil liability makes special reference to tolerance limits as limitations on liability: see Article 8 d of the new European Convention for Damage Resulting from Activities Dangerous to the Environment ( " T h e operator shall not be liable under this Convention for damage which he proves was caused by pollution at tolerable levels under local relevant circumstances."). In the Nordic countries, the notion of tolerance limits is codified in Sweden, Finland, and Norway, but not in Denmark.

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II. Arguments of Efficiency Concerning Environmental Civil Liability T h e ethical o r political appeal o f efficient resource allocation d e p e n d s u p o n how o u r intuition or e m o t i o n s r e s p o n d to its various normative characteristics. F o r the p u r p o s e o f this p a p e r , efficient resource allocation m e a n s that all resources are p u t to their most valuable use, where value is m e a s u r e d by the aggregate willingness to pay for the resource. It is obviously a value j u d g e m e n t to choose efficient resource allocation as the goal for p o l l u t i o n c o n t r o l policy, a n d its normative alternatives have to be spelled o u t before an i n f o r m e d choice can be made. F o r the p u r p o s e s o f this paper, however, I assume that efficient resource allocation has n o t b e e n e x c l u d e d as a policy goal by the policymaker. T h e r e are several reasons for this assumption. First, balancing the value o f p o l l u t i o n a b a t e m e n t activities against o t h e r activities may be consistent with several o t h e r ethical systems. Second, it may also be an implication o f o t h e r normative ideals that resources devoted to pollution a b a t e m e n t should give as m u c h e n v i r o n m e n t a l quality p e r unit as possible. Third, courts may be in a difficult position to p r o m o t e o t h e r goals t h r o u g h the civil liability remedy. In s u m , the implications of efficient resource allocation may be subject to an overlapping consensus in the ethics a n d politics o f p o l l u t i o n control [Rawls (1993); cf. Posner (1995)]. Switching from a normative to a norm-descriptive level, efficient resource allocation may be a central societal goal as a m a t t e r of fact. This is largely an empirical question, as policy choices may differ across legal systems. In Norway, policy d o c u m e n t s reveal a p r e f e r e n c e for efficient resource allocation when policymakers are c o n f r o n t e d with the choice o f p o l l u t i o n c o n t r o l instruments. 6 However, this general p r e f e r e n c e may n o t e x t e n d to liability rules. Thus, it is o f relevance to ask w h e t h e r statutory language a n d legislative history s u p p o r t efficiency a r g u m e n t s c o n c e r n i n g civil liability. First, the a n n o u n c e d goals a n d guidelines of the Norwegian Pollution Control Act are consistent with notions o f cost-benefit analysis. 7 T h e first s t a t e m e n t of the p u r p o s e of the Act is by itself too g e n e r a l to l e n d s u p p o r t to this proposition, s T h e Act states simply that the p u r p o s e is to " p r o t e c t the external e n v i r o n m e n t from p o l l u t i o n a n d to r e d u c e existing pollution, as well as to p r o m o t e better t r e a t m e n t o f waste." In the next section o f § 1, the desirable e n d result is d e f i n e d as " a d e q u a t e e n v i r o n m e n t a l quality." This too is quite general, a l t h o u g h the term " a d e q u a t e " may indicate a balancing o r accomod a t i o n o f e n v i r o n m e n t a l a n d o t h e r concerns. T h e first statutory guideline for the i m p l e m e n t a t i o n of the Act gives m o r e substance to the c o n t e n t i o n that the Act is consistent with cost-benefit reasoning. In the first section o f § 2 it is stated that " t h e act shall be used to achieve satisfactory e n v i r o n m e n t a l quality on the basis o f a total appraisal o f health, welfare, the natural e n v i r o n m e n t , costs related to controJ measures a n d e c o n o m i c c o n s i d e r a t i o n s . " It is somewhat o d d to see the term " e c o n o m i c " used in this narrow way. It could be a r g u e d that the guideline taken as a whole asks for a cost-benefit evaluation o f the way the Act is used. Second, all three Norwegian legislative processes on p o l l u t i o n tort rules contain explicit statements that s u p p o r t efficiency notions. In his 1878 initiative (the birth o f e n v i r o n m e n t a l civil liability in Norway), lawyer-economist A s c h e h o u g (1878) d e f e n d e d the n e e d to s o m e h o w split entitlements to act between possessors o f land, a n d a r g u e d for a tolerance limit as a n o r m o f neighborliness. His a r g u m e n t was that a tolerance

6St. meld. (1996-97); Virkemidl~.r i miljcpolitikken, NOU (1995). 7See Pollution Control Act §§ 1 and 2 nr.l. 8See § 1, first section.

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limit was n e e d e d to assure that l a n d was p u t to the best use p o s s i b l e , j u d g e d by a social standard. 9 Next, in the codification o f e n v i r o n m e n t a l civil liability, the postwar codifiers a r g u e d that a central goal for nuisance (neighbor) law is to help owners a n d society to benefit as m u c h from land as possible, l° Finally, in o u r own era of environmentalism, Norwegian tort reformers stated that m o r e restrictive liability rules could lead to a lower level o f pollution d u e to incentive effects, a n d d e f e n d e d this possible c o n s e q u e n c e u n d e r the assumption that the costs o f change (in d e g r e e of restrictiveness) are less than the costs avoided. 1~ In sum, efficiency a r g u m e n t s seem to be relevant for d e c i d i n g issues of e n v i r o n m e n t a l civil liability. This does n o t say much, o f course, a b o u t what the c o n t e n t of the law is. W h e t h e r the law is or can be m a d e efficient must be e x a m i n e d in greater detail. T h e p o i n t here is only that such an e x a m i n a t i o n is m o r e interesting if efficiency has some s u p p o r t as a legal concern. Efficiency arguments a b o u t tolerance limits a n d t e m p o r a l priority must be based on an assessment of the p r o p e r role o f e n v i r o n m e n t a l civil liability. Clearly, civil liability works best when there are few polluters a n d when h a r m is geographically limited a n d not too dispersed. If necessary, p r o b l e m s that arise with many n e i g h b o r s can be overcome by p r o c e d u r a l devices, like class action suits. Civil liability does n o t work when there are many polluters. In this situation, o t h e r forms o f social control are likely to be p r e s e n t as well. O n the o n e hand, one can have private c o o r d i n a t i o n t h r o u g h informal n o r m s or contracts. O n the other, there is public regulation t h r o u g h rules or permits. Thus, the role of civil liability differs with the legal context. F r o m observations of actual liability rules in Norway, o n e can distinguish between settings where public regulation does n o t apply, settings where polluters comply with public regulation, a n d settings where polluters breach public regulatory duties. T h e first setting is where h a r m is small o r usual. Here, pollution is b e y o n d public regulation by regulatory choice. In this situation, informal n o r m s o r contracts are potentially pervasive, a n d a role for liability is to facilitate this private coordination. T h e most obvious task is to enforce contracts by p u t t i n g a price on breach, without a tolerance limit. In a d d i t i o n to contracts, civil liability with tolerance limits signals a n d may induce desirable behavior. T h e s e c o n d setting is where pollution is in c o m p l i a n c e with public regulation. Here, either o f two rationales for civil liability may apply. O n e is the n o t i o n o f i n c o m p l e t e regulation [Rose-Ackerman (1996), pp. 19-22]. A c c o r d i n g to this theory, civil liability may fill gaps in public regulations. First, there may be gaps in public regulations because 9A translated e x c e r p t reads as follows: " T h e surtb.ce constitutes a c o n t i n m n n . T h e way it is divided is always s o m e w h a t arbitral3,. By a n d large, no property in land can be isolated f r n m others. If the o w n e r was allowed to prohibit all acts that affected his property in land, each property stake would have to s p r e a d over a very wide surface. T h a t would imply that the law would restrict the opportunity o f m a n to m a k e the best use o f the sm~face o f the earth. If the g r o u n d surface is to be partitioned as is d e m a n d e d by tire needs o f Society, each o w n e r m u s t accept m a n y acts that are c o n d u c t e d o n n e i g h b o r i n g land, but which have real efl~ects on a d j o i n i n g land." [ A s c h e h o u g (1879), p. 49]. l°A translated e x c e r p t reads: " B e y o n d the most i m m e d i a t e p u r p o s e which is to separate right ti'om w r o n g in questions between neighbors, the n e x t task is to structnre the rules such that owners a n d thus society benefit as m u c h f r o m the property as possible. This is the p u r p o s e b e h i n d o t h e r acts as well. But h e r e it is particularly a p p a r e n t because the use o f real property is the subject, so to s p e a k . " [Six411ovbokut',~alet (1957), p. 17]. l lA translated e x c e r p t reads: " T h e tort liability rnles have both direct a n d indirect e c o n o m i c consequences. Primarily, the rules a i m at c o m p e n s a t i n g h a r m fi-om pollution by m e a n s o f transfers f r o m the polluter to the victim. But the rules have a n o t h e r i m p o r t a n t function. T o r t liability m u s t be a s s u m e d to work as an incentive to avoid pollution o r to keep it at a low level. ( . . . ) In an e c o n o m i c perspective, m o r e restrictive liability rules could lead to a lower level o f pollution, which is socially desirable if the cost o f c h a n g e is less than the loss a v o i d e d . " [ N O U (1982), p. 241].

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the information n e e d e d to define optimal behavior ex ante is immense. Desirable behavior varies with time and place, and it includes both the polluter and the neighbor. Second, the cost of administering a complete regulatory system would be very high. With ex-post liability, administrative costs are only incurred in instances where harm occurs [Shavell (1987), p. 282]. A n o t h e r rationale for civil liability where the polluter complies with public regulation, is the theory of judicial review [Ogus and Richardson (1977), pp. 324-325]. According to this theory, civil liability is an impulse to better agency decision making in the future. The traditional form of judicial review is that the court invalidates agency decisions. U n d e r normal circumstances, however, this remedy might be too strong. Because there is a danger that courts overestimate their institutional competence to decide in these matters, a more flexible form of agency control is joint decision making t h r o u g h the civil liability remedy. The third setting is where civil liability is a sanction against breaches of regulation. Here, an enforcement-assisting rationale for liability applies [Rose-Ackerman (1996), p. 22]. However, one could ask whether the theory of judicial review also should apply. In sum, the optimal structure of liability depends not only u p o n analysis of the efficiency criterion, but also on the harmonization of civil liability with other forms of environmental regulation. III. Tolerance Limits What are Tolerance Limits ?

Tolerance limit is a term used in the heading of § 56 in the Norwegian Pollution Control Act and refers to the end result of the interpretation of § 56. The idea is that a certain threshold level of harm has to be reached before liability sets in [Ljungman (1943); N O U (1982)]. If the polluter causes harm above this level, he is liable. What this level of harm is, depends on the p r o p e r interpretation of § 56. Because it affects the proper construction, an outline of the likely consequences of tolerance limits is necessary. Consequences of Tolerance Limits

Legal economics makes it possible to assess the probable consequences of civil liability with tolerance limits (when contrasted to a comprehensive principle of strict liability). First, tolerance limits may save on administrative costs. Tolerance limits save on administration costs because m i n o r harm does not give rise to legal claims. O n the other hand, the cost of determining the question of liability may be somewhat higher u n d e r a tolerance limit than u n d e r a rule of strict liability. Thus, total administrative costs will only be smaller u n d e r a tolerance limit if the former effect is greater than the latter. Landes and Posner (1987) clearly think this is the case when they state that " . . . u n d e r a comprehensive principle of strict liability, e n o r m o u s administrative costs would be incurred for trivial improvements in the allocation of resources." Second, tolerance limits may affect the behavior of polluters and neighbors. The likely behavioral effect depends primarily u p o n how the standard is structured. O n e possibility is that legal doctine describes socially desirable behavior to p r o m o t e it directly. If costs bar negotiations between the parties, civil liability with tolerance limits gives incentives to comply with the implicit duty to abate by setting a sanction on breach [Cooter (1984)]. The effect on resource allocation will d e p e n d on how the courts

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conceive of a n d m a n a g e their tasks a n d on the constraints they face. In principle, the tolerance limit can be used to affect choices o f location, activity level, a n d care, d e p e n d i n g u p o n the structure o f d o c t r i n e underlying tolerance limits. How powerful this incentive is, d e p e n d s on the sanction a n d on the transmission of i n f o r m a t i o n to the parties a b o u t the c o n t e n t o f the tolerance limit. If polluters a n d n e i g h b o r s can bargain with each other, no version o f civil liability with tolerance limits will m a t t e r to efficiency if b a r g a i n i n g is perfect [Coase (1988), pp. 97-114]. If b a r g a i n i n g is imperfect, however, predictions d e p e n d on the particular assumptions a b o u t the b a r g a i n i n g process. Following Ayres a n d Talley (1995), one might suggest that civil liability with tolerance limits can e n c o u r a g e b a r g a i n i n g because this rule divides the e n t i t l e m e n t to the e n v i r o n m e n t between polluters a n d neighbors. Such a division can facilitate trade by r e d u c i n g the incentive to behave strategically u n d e r bargaining. A n o t h e r reason to believe that civil liability with tolerance limits can e n h a n c e b a r g a i n i n g is that the e n t i t l e m e n t is c o n t i n g e n t u p o n ex-postjudicial b a l a n c i n g u n d e r a general standard. In a r e c e n t article,Jason J o h n s t o n (1995) c o m p a r e s how such c o n t i n g e n t ex-post entitlements affect b a r g a i n i n g in contrast to definite ex ante entitlem e n t that is clearly d e f i n e d a n d assigned to one o f the parties a c c o r d i n g to a rule. J o h n s t o n claims that b a r g a i n i n g may be m o r e efficient u n d e r a blurry balancing rule than u n d e r a certain rule. O f course, it would be satisfactory if the tolerance limit a n d its doctrinal structure could be directly derived from the analysis of efficient resource allocation sketched here. However, the goal of efficient allocation of resources does n o t single o u t a u n i q u e structure of civil liability as the most desirable. This is because the desirable structure o f civil liability d e p e n d s u p o n empirical assessments a n d considerations o f institutional c o m p e t e n c e that have yet to be carried out. As a response to this p r o b l e m o f indeterminacy, the p r e s e n t structure of Norwegian civil liability is taken as given.

Three Bases for Liability Determine Tolerance Limits T h e effort to better u n d e r s t a n d a n d improve civil liability is n o t e x h a u s t e d by a d o p t i n g the legal status quo as the baseline. This section asks the narrow question o f w h e t h e r the tolerance limit is consistent with the principle of t e m p o r a l priority, a n d address the b r o a d e r issue o f the efficiency implications o f the tolerance limit. These questions are first p u t to the test o f unnecessary pollution. T h e n , the same questions are p u t to the various factors u n d e r the test of u n r e a s o n a b l e pollution.

The test of unnecessary pollution. T h e test of unnecessary pollution holds that the polluter is liable for the h a r m to the n e i g h b o r if the p o l l u t i o n could have b e e n avoided at low costs relative to the r e d u c t i o n of h a r m ) 2 To illustrate the test o f unnecessary pollution in cases o f industrial pollution, the case of Jernverket will be c o n s i d e r e d J 3 In this case, the plaintiffs were f o u r t e e n homeowners, a n d the d e f e n d a n t ran a steel plant. T h e h a r m was smoke g e n e r a t e d by steel p r o d u c t i o n , a n d the question was w h e t h e r the smoke release e x c e e d e d the tolerance limit. To resolve this question, the court first

lZAccording to legislative history, the i n t e n t i o n b e h i n d the test o f unnecessary p o l l u t i o n was to constrain two sorts o f behavior. First, the test was m e a n t to capture the situation where the sole i n t e n t i o n is to do harm. Second, the test was m e a n t to regulate the situation where the pursnit o f a useful purpose results in p o l l u t i o n as a side effect. The following discussion will focus on this second category o f conduct. ISRt. 1972, s. 142.

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c o n s i d e r e d the test o f u n r e a s o n a b l e p o l l u t i o n (which will be discussed below), b u t it f o u n d that it d i d n o t apply, mainly because the h a r m to n e i g h b o r s was no m o r e than must be e x p e c t e d when living in the vicinity o f a steel plant. ~4 T h e issue was t h e n w h e t h e r the h a r m was unnecessary because the steel c o m p a n y s h o u l d have installed filters, b u t a majority o f four rejected this basis for liability as well. T h e majority a c c e p t e d that the c o m p a n y h a d p o s t p o n e d the choice o f a b a t e m e n t t e c h n o l o g y a n d f o u n d that it s h o u l d n o t b e a r the risk o f facing a d i s r u p t i o n o f o p e r a t i o n s when i m p l e m e n t i n g the new technology. T h e e x p e c t e d disruptions i n c l u d e d non-delivery for over a year as well as several years o f start-up difficulties. T h e position o f the minority, on the o t h e r hand, shows the potential o f the test o f unnecessary pollution. T h e dissenting J u d g e Leivestad f o u n d that the h a r m was unnecessary a n d gave three reasons why the steel c o m p a n y should have installed filters in the first place. T h e first reason was that investment plans a n d budgets a p p r o v e d by the P a r l i a m e n t i n c l u d e d the project o f installing filters. T h e s e c o n d reason was that the c o m p a n y h a d d e l i b e r a t e d which courses of action to choose, a n d that even a private cost-benefit analysis between various alternatives h a d b e e n carried out. T h e third reason was that almost all similar steel plants elsewhere in the world h a d installed filters. It is n o t clear from the o p i n i o n o f J u d g e Leivestad to what e x t e n t the test o f unnecessary p o l l u t i o n implies a duty to incur efficient costs to avoid harm. In a n o t h e r case, Bybrua i Stavanger, the S u p r e m e Court o f Norway states as an obiter dictum that if a substantial r e d u c t i o n in the h a r m can be o b t a i n e d from low-cost modifications in the construction, t h e n the h a r m is unnecessary, a5 It is clear that it does n o t m a t t e r w h e t h e r the p o l l u t e r h a d subjective beliefs different from the true costs o f h a r m a n d its avoidance. Thus, the test o f unnecessary p o l l u t i o n may be characterized as strict liability for u n t a k e n steps to r e d u c e clearly inefficient emissions. 16 In 1989, a new g u i d e l i n e was e n a c t e d that stated that a b a t e m e n t possibilities shall be given d u e weight in the d e t e r m i n a t i o n o f liability.17 In the legislative process, it was q u e s t i o n e d w h e t h e r it was necessary to say this explicitly, because a b a t e m e n t possibilities could be a relevant issue in most instances, w h e t h e r stated explicitly in legislation o r not. T h e legislator argued, however, that the new guideline reflected the strengthe n i n g o f e n v i r o n m e n t a l values. T h e legislative form would have a desirable effect on j u d i c i a l practice and, in addition, would r e d u c e legal uncertainty. 18 As the legislative process revealed, the new g u i d e l i n e raises i m p o r t a n t issues. First, it is clear that the factor o f a b a t e m e n t possibilities gives the tolerance limit dynamic properties. In principle, the failure to use the most efficient cleaning technologies is relevant for d e c i d i n g the liability issue. This is clearly so where the use of new a b a t e m e n t technology has b e c o m e m o r e widespread. If the p o l l u t e r does n o t take steps to abate p o l l u t i o n as such techniques b e c o m e m o r e c o m m o n , he can be liable even if the p o l l u t i o n previously was tolerable. Thus, as new technology comes into wider use, the restrictions on p o l l u t i n g activities are tightened, a n d the limit for what the victim

14See the discussion of the factor of expectable h a r m below. ~SRt. 1981, s. 343. 16See also Rt. 1874, p. 409; Rt. 1915, p. 337; Rt. 1965, p. 933; Rt. 1969, p. 757; Rt. 1971, p. 387; Rt. 1972, p. 142; Rt. 1979, p. 37. Askeland (1996) seems to reach roughly the same result, although he does not use the term efficiency. 17"In deciding whether something is unreasonable or unnecessary, due weight shall be given to what is technically a n d economically possible to do to prevent or limit the h a r m . " (Author's translation of Neighbor's Act § 2, section

two.) lSOt. prp. nr. 33 (1988-1989), pp. 38-39.

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should b e a r without c o m p e n s a t i o n is adjusted accordingly. T h e justification for this stricter a p p r o a c h was n o t explicitly c o n n e c t e d to stated policy goals. T h e Justice Dep a r t m e n t stated only that the dynamic p r o p e r t y of the tolerance limit d u e to the factoring in o f a b a t e m e n t possibilities was " n a t u r a l . " In Parliament, it was n o t e d that when e n v i r o n m e n t a l concerns h a d led to the a d o p t i o n o f p r o d u c t i o n technologies that pollute less a n d technologies that b e t t e r prevent noise etc., it would be u n r e a s o n a b l e if this d e v e l o p m e n t should n o t also benefit the c o m m o n man. 19 Second, the a b a t e m e n t possibility factor raises questions of institutional c o m p e t e n c e a n d judicial restraint. This is because the new guideline confronts the courts with informational problems. T h e a b a t e m e n t possibility factor implies that courts d e t e r m i n e the consequences o f the fact that a firm does not make use o f the most m o d e r n technology that is technically/economically available to r e d u c e pollution. Courts are thus c o n f r o n t e d with difficult technical a n d e c o n o m i c decisions. It m i g h t be a r g u e d that it is c o u n t e r p r o d u c t i v e that both the courts a n d the Administration should m a k e such evaluations. O n the o t h e r hand, the A d m i n i s t r a t i o n is n o t able to pursue all cases that are o f interest from the s t a n d p o i n t o f liability.2° Given the desirable goal for the court to give reasonable weight to each party, the best a r r a n g e m e n t is probably for the c o u r t to take the technological d e v e l o p m e n t into account. 21 In the face of these difficulties, courts may choose to apply the factor of a b a t e m e n t possibilities with caution, a n d a c c o r d i n g to circumstances. Thus, if firms do n o t u n d e r t a k e e l e m e n t a r y measures, a n d the costs o f a b a t e m e n t are low, then the courts will be active. If, on the o t h e r hand, the a b a t e m e n t involves costly a n d advanced e q u i p m e n t , then the courts will exercise restraint. 22 F r o m the legislators' p o i n t o f view, the test o f unnecessary p o l l u t i o n was m e a n t to have real bite. So far, however, this legislative i n t e n t i o n has n o t h a d m u c h influence on case law. O n e possible e x p l a n a t i o n for this is that the p o l l u t e r generally has m o r e i n f o r m a t i o n a b o u t the cost o f avoidance than the n e i g h b o r s a n d the courts. T h e test of unnecessary pollution clearly refers to the choice of care. It is m o r e doubtful to what extent it also captures o t h e r dimensions o f abatement. In the case o f Bunker, 23 the activity l e v e l / l o c a t i o n choice was also considered. T e m p o r a l priority has not b e e n m e n t i o n e d u n d e r this test.

The test of unreasonable pollution: a general basis for liability. A c c o r d i n g to the w o r d i n g o f the statute, four factors are relevant to the d e t e r m i n a t i o n of liability u n d e r the test of u n r e a s o n a b l e pollution: 1. 2. 3. 4.

T h e e x t e n t to which the h a r m is usual. T h e e x t e n t to which the h a r m is expectable. T h e extent to which the h a r m could be p r e v e n t e d o r reduced. W h e t h e r pollution harms a distinguishable g r o u p substantially m o r e than others.

19Innst. O. (1988-1989), p. 7. 2°This s t a t e m e n t has two interpretations in the c u r r e n t context. T I : T o l e r a n c e limits are set f r o m different policy reasons than agency standards (which may o r may not be efficient). T2: T o l e r a n c e limits are set f r o m the s a m e policy standard as agency standards. A special case is where these standards are set o n the basis o f the efficiency criterion. U n d e r this assumption, the s t a t e m e n t can i n t e r p r e t e d to m e a n that the a g e n c y is n o t p r e s u m e d by the l a w m a k e r to p r o m u l g a t e a n d enforce perfectly efficient regulations. 21NOU (1982), p. 65. 22NOU 1982, pp. 77-78. Z3Rt. 1965, p. 933.

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A n e l a b o r a t i o n o f this list reveals a certain structure o f rules a n d guidelines. T h e first t h r e e factors are f o r m u l a t e d as guidelines, i.e., factors that shape, b u t d o n o t a t t e m p t to d e t e r m i n e , the j u d g e m e n t m a d e u n d e r the test. Together, they form a general basis of liability u n d e r the test o f u n r e a s o n a b l e pollution. In this subsection, these factors are d e s c r i b e d a n d discussed. In each case, the question is how far the factor in question is consistent with the i d e a o f t e m p o r a l priority, a n d how it relates to the goal o f efficient allocation o f resources. Is a b a t e m e n t possibility consistent with t e m p o r a l priority o r efficiency? Is usual h a r m consistent with t e m p o r a l priority o r the efficiency criterion? Is expectability a criterion u n d e r t e m p o r a l priority o r the efficiency a p p r o a c h ? T h e f o u r t h factor is a rule that d e t e r m i n e s the scope o f j u d i c i a l discretion. It constitutes a separate basis for liability. This tolerance limit will be discussed in the third subsection of the third p a r t o f Section III. USUAL HARM IS OFI'EN REASONABLE. O n e guideline in § 2 of the N e i g h b o r ' s Act states that p o l l u t i o n tends to be reasonable if it is a usual h a r m resulting from n o r m a l l a n d use in such areas. 24 Before 1989, "usual h a r m " was a rule, n o t a factor. T h e p r e s e n c e o f usual h a r m e x c l u d e d liability.25 In 1989, the w o r d i n g was c h a n g e d from expressing a rule to expressing a guideline. Now, statutory language expresses that all l a n d use should be c o m p a r e d . A n d it follows explicitly from the w o r d i n g that the cause n e e d n o t be usual, it is e n o u g h that the h a r m is usual. 26 O n the o t h e r hand, if the h a r m is unusual, it does n o t h e l p that the activity is usual. 27 O n e illustration o f the application o f this factor is f o u n d in the case of Egersund. ~8 In that case, 42 n e i g h b o r i n g landowners b r o u g h t suit against 5 factories that e m i t t e d fish fat into the water n e a r the beaches. C o m p e n s a t i o n was d e n i e d because the h a r m was usual for fish factories, b o t h in Egersund a n d in o t h e r local c o m m u n i t i e s a l o n g the coast. Usual h a r m was also a factor in the case of Jernverket (see the first part o f Section III above).2° In that case, the S u p r e m e C o u r t n o t e d that conditions were n o t worse than what usually follow from n o r m a l use o r o p e r a t i o n a l m e t h o d s in such places. T h e basis for this j u d g m e n t is f o u n d in the o p i n i o n of the lower court. In the proceedings, the lower c o u r t h a d c o m p a r e d the m a g n i t u d e o f smoke g e n e r a t e d there with what was observed in Oslo, with what was g e n e r a t e d at o t h e r plants, a n d with the m a g n i t u d e of dust r e q u i r e d by G e r m a n regulations. They also note that the h a r m was c o m m o n for an industrial area. A n i m p o r t a n t implication o f the unusual h a r m factor is that it allows for a flexible set o f tolerance limits. As n o t e d in the traditional literature, this flexibility c o n c e r n s b o t h time a n d space. With r e g a r d to t e m p o r a l flexibility, it has b e e n n o t i c e d that the u n r e a s o n a b l e p o l l u t i o n test changes as t e c h n o l o g y progresses with the implication that

24The translated language of the third section of § 2 in the Act of June 16, 1961 reads: "In deciding whether something is unreasonable, due weight shall further be given to whether it is likely to accord with the usual conditions obtaining in the locality and if it is worse than that which usually follows from normal use or operational methods in such places." It is the second part of this guideline refers to usual harm. The first part concerns the expectable harm factor which will be discussed below. 25Before the act was revised in 1989, it read: " I f it is not worse than that which usually follows from normal use or operational methods in such places, it shall not be considered unreasonable." 26Falkanger (1993), p. 280. 27Nygard (1974), pp. 192-93. 28Rt. 1972, p. 403. ~9Rt. 1972, p. 142.

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new a b a t e m e n t technology that b e c o m e s widespread must be used. 3° O n e could ask, however, if too m u c h emphasis on what is usual may fail to spur the s p r e a d o f new technology in the early stages o f its use. With r e g a r d to spatial flexibility, the usual h a r m factor says that one tends to have to tolerate without c o m p e n s a t i o n the h a r m that is usual for that kind o f n e i g h b o r h o o d . It thus implies differentiation by categories of location. 31 T h e decision makers have to c o m p a r e local c o m m u n i t i e s o f the same kind. T h e tolerance limit is thus different for industrial areas, s2 residential areas, 33 agricultural districts, 34 a n d p r o p e r t y along m a i n roads. :~5 A d i s p u t e d question in the analysis of the unusual h a r m factor is w h e t h e r the character o f the h a r m is relevant, or w h e t h e r it is only a question o f the d e g r e e o r e x t e n t o f the harm. O n e can argue that a decision m a k e r may have difficulty c o m p a r i n g different kinds o f harm. As a consequence, j u d g e s will have a h a r d time d e t e r m i n i n g w h e t h e r the situation after the new set of harms is worse than the situation before. In this sense, the kinds of h a r m may be i n c o m m e n s u r a b l e . A l o n g these lines Br~ekhus a n d Hrerem (1964) argue that new kinds o f h a r m c a n n o t be treated as usual, even if they take the place of o t h e r kinds o f harm. ~ To the contrary, Nygard (1974) a r g u e d that the normalcy factor refers to the d e g r e e o f harm, a n d that decision makers have to m a k e the necessary comparisons when they apply the usual h a r m f a c t o r F How are these various legal starting points to be evaluated from an efficiency perspective? O n e question is what impact the usual h a r m factor has on administrative costs. As n o t e d in the literature, o n e might obtain savings in administrative costs by limiting liability for frequently occurring h a r m or risk. If such h a r m or risk is relatively small a n d p e o p l e t e n d to benefit from as well as be h a r m e d by activities that g e n e r a t e the harm, it will probably be desirable to find a criterion to e x e m p t this class o f h a r m from liability. To this end, various authors have suggested notions of neighborliness [Ellickson (1973), pp. 729-732] a n d reciprocity [Epstein (1993), pp. 574-575). T h e usual h a r m factor is similiar to these notions in its reliance on normalcy considerations. Thus, this factor has probably the same beneficial effect on administrative costs as standards o f neighborliness a n d reciprocity. T h e next efficiency issue concerns how the dimensions o f avoidance (care, activity level, location, etc.) are affected by the test of u n r e a s o n a b l e pollution when a factor o f unusual h a r m is built in. It may be a r g u e d that the m e a n i n g o f d u e care is d e f i n e d on the basis o f m o r e information because usual h a r m carries i n f o r m a t i o n a b o u t costs a n d benefits of a b a t e m e n t [Epstein (1992); Ellickson (1991, 1993) ]. For instance, it may be a r g u e d that the activity level is affected because the usual h a r m factor implies a weighing o f costs a n d benefits between activity levels. It may also be a r g u e d that choices o f t e m p o r a l a n d spatial location are affected by legally enforcing informal n o r m s (patterns of behavior e n f o r c e d by controllers outside the legal system), which alone may have only r u d i m e n t a r y power to affect t e m p o r a l or spatial location choices.

:~°NOU (1982), p. 67, Falkanger (1993), pp. 280-281. :~NOU (1982), l.c., Bra~khus and H~erem (1964), p. 110. :~2Rt. 1916, p. 1148; Rt. 1972, p. 403. :~:~Rt. 1905, p. 513; Rt. 1991, p. 1281. :~4Rt. 1936, p. 553; Rt. 1938, p. 45. :~SRt. 1981, s. 343. :~%r~ekhus and H~erem (1964), p. 110. :~VNygard (1974), p. 193.

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EXPECTABLE HARM. An i m p o r t a n t d e t e r m i n a n t in the weighing process is the factor o f e x p e c t a b l e harm. This follows from statutory language that says that it is relevant w h e t h e r p o l l u t i o n is "likely to a c c o r d with the usual conditions occuring in the locality." This is somewhat similiar to the spatial aspect o f usual harm, b u t differs in the emphasis on what is to be expected. ~8 If the h a r m is likely o r expected, " d u e weight shall be given" to this fact. Again, this is guideline talk, n o t rule talk: T h e m o r e likely it is that h a r m will occur, the less likely it is that the p o l l u t e r will be h e l d liable. To illustrate, c o n s i d e r the case of Jernverket. To repeat, this case involved 14 n e i g h b o r s to a steel p l a n t that g e n e r a t e d smoke. T h e question was w h e t h e r h a r m was intolerably high. T h e c o u r t f o u n d that the test of u n r e a s o n a b l e p o l l u t i o n d i d n o t apply to the traditional emissions, because this h a r m was expectable to all n e i g h b o r s who built h o m e s after the p l a n t was p l a n n e d . ~9 Thus, they all a c c e p t e d the risk o f b e i n g e x p o s e d to the smoke nuisance (how the c o u r t treated n e i g h b o r s who built before the p l a n t was p l a n n e d will be discussed in the first subsection of the s e c o n d part of Section IV). A r e m a i n i n g question was w h e t h e r an increase in h a r m d u e to new technology a n d h i g h e r activity levels was c o m p e n s a b l e . T h e S u p r e m e Court d e n i e d this also, because increases in h a r m were g e n e r a t e d by relatively small technological changes in p r o d u c t i o n inethods a n d a gradual e x p a n s i o n o f the enterprise. It was n o t a radical shift in the c h a r a c t e r o f previous activity. If that h a d b e e n the case, a new form o f nuisance would have b e e n created, a n d the h a r m would n o t have b e e n foreseeable. 4° Expectations may be taken to imply that parties form probabilities a b o u t possible states o f the world. O n this account, expectations are s o m e t h i n g factual. But surely the c o n t e n t o f o n e ' s expectations d e p e n d s on rules a n d policies. In short, what you expect d e p e n d s o n what you have a right to expect. But rules, policies, a n d o t h e r d e t e r m i n a n t s o f expectations c h a n g e all the time. How does this affect the duty to avoid harm at various points in time? Clearly, b o t h polluters a n d n e i g h b o r s can d o s o m e t h i n g to avoid harm. This is r e c o g n i z e d in legislative history c o n c e r n i n g the expectable factor. For instance, when the postwar codifiers spoke o f new activities o r technologies, they said that new c o n d i t i o n s could occur either on the p o l l u t e r ' s side o r the n e i g h b o r ' s side, a n d thus c h a n g e the efficient pattern. They illustrated this with a story a b o u t certain noisy, b u t relatively harmless engines, which in the era o f radio waves could interfere with substantial interests. A c c o r d i n g to the codifiers, such new forms o f h a r m can he c o n s i d e r e d u n r e a s o n a b l e even if the noise previously was reasonable, a n d the new activity was o n the n e i g h b o r ' s side. Thus, with r e g a r d to c h a n g i n g conditions a n d liability, it does n o t m a t t e r w h e t h e r the new conditions occur on the side o f the p o l l u t e r or on the side o f the n e i g h b o r . 41 Implicitly, the codifiers said that liability c a n n o t be d e c i d e d on g r o u n d s o f causation, an o p i n i o n that Coase expressed explicitly a few years later. 42 T h e implication seems to be that the parties should ask what to expect of future

38The term expectable is more suitable than both foreseeable and likely, for the following reasons. First, Sivillovbokutvalet explicitly substituted the term "pfiregnelig" (forseeable) with the term "venteleg" (expectable) to reflect the thought that the former concept requires a lower probability than the latter, and that case law really requires the higher probability. Second, the discussion of case law below indicates that there is a normative dimension in the j u d g m e n t that may be better captured by the term expectable. 39See the discussion of the factor of expectable harm in the third part of the second subsection of Section Ill. 4°And the case Bod# (Rt. 1973, p. 1173) establishes that it is not the subjective expectation that is decisive, but rather what is objectively to be expected. 41Sivillovbokutvalet (1957), s. 27 sp. 1. 4eThe Codifiers published its report in 1957, whereas Coase's classic on social cost is dated 1960.

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harm and their duty to avoid it. But how should they address this issue? This question raises a conceptual problem. The source of the the problem may lie in the following ambiguity in the way "expectability" is used, both in ordinary language and in case law. O n the one hand, expectability may be defined as the objective probability of future eventsY This definition reflects the idea that the likelihood of harm really is an important determinant of liability. This is only coherent, however, if what is to be expected is i n d e p e n d e n t of the decision about liability. If it is not, then one can either say that the polluter should be liable because harm was not expected, or that the polluter is not liable because harm was expected. If expectations about liability determine what is likely to happen, both statements can be right, depending on whether liability is postulated or not. On the other hand, expectability may be defined as the presence of sufficient arguments to treat harm as likely. 44 This second definition of expectability provides only a name for the end result of an interpretative process. Thus it does not entail any logical problems like those encountered u n d e r the first definition. As consequence, however, one has to look elsewhere to identify the real basis for liability. Factors in case law that seem to be relevant include: implicit compensation had been obtained45; the neighbors assumed the risk46; the neighbors exhibited contributory negligence47; the neighbors' property was hypersensitive48; harm flowed from natural developments49; permission had been given from public authority5°; and the utility of polluting activity was great. 51 An important consideration that is connected to what is expectable is the notion of temporal priority, but this is the topic of the next section. Do these factors produce desirable consequences? The efficiency model approach applied to temporal priority in the third part of Section 1V tells us that the crucial question in a model with two time periods is who should have been first in Period 1. The prior user should make his investment based on an evaluation of future income streams, taking into account the possibility of change in efficient land use patterns [Wittman (1980)]. This line of reasoning underscores the relevance of reasonable expectations to the question of liability, but it leaves open questions about the nature and formation of expectations. To facilitate private coordination, it seems desirable for legal rules to provide some c o m m o n basis of information from which to form expectations. A first candidate to coordinate behavior is geography. The guideline language refers to geography when it speaks about the character of the neighborhood. The perceived importance in tradition of this notion is that the parties should ask themselves at the time of investment what

~:~See, for instance, Rt. 1900, p. 593; Rt. 1905, p. 513; Rt. 1923, p. 26(t; Rt. 1926, p. 647; Rt. 1928, p. 741; Rt. 1964, p. 609; Rt. 1995, p. 1303. 44See, fk-)rinstance, Rt. 1911, p. 877; Rt. 1929, p. 173; Rt. 1931, p. 211; Rt. 1960, p. 620; Rt. 1969, p. 643; Rt. 1971, p. 387; Rt. 1972, p. 142; Rt. 1972, p. 377; Rt. 1973, p. 1193; Rt. 1974, p. 122; Rt. 1974, p. 524; Rt. 1981, p. 343; Rt. 1982, p. 588. 45RL 1969, p. 643; Rt. 1972, p. 377. 46Rt. 1972, p. 142. ~7Rt. 1931, p. 211; Rt. 1974, p. 122. 48Rt. 1923, p. 260. ~"~Rt. 1931, p. 211. :'°Rt. 1933, p. 260; Rt. 1960, p. 620. :'lRt. 1969, p. 643; Rt. 1972, p. 377; Rt. 1996, p. 232. There are no cases that explicitly give favorable treatment to government enterprise.

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is to be expected in the area, a n d n o t j u s t confine their expectations to the nearest neighbors. 52 A second candidate to coordinate behavior is various forms of public regulation. To illustrate, increased traffic noise from new or improved roads may be j u d g e d according to n o n - b i n d i n g guidelines from the D e p a r t m e n t of the E n v i r o n m e n t .5"~A n o t h e r example is that z o n i n g decisions may guide the choice of what people in residential areas have to expect of h a r m from industry or highways. The desire to coordinate the behavior of the parties makes it desirable to treat good a n d bad estimators differently. Consistent with this, it is the objective, n o t the subjective probability that should be taken into account. 54 POSSIBILITIESTO PREVENT OR REDUCE HARM. As discussed u n d e r the test of unnecessary pollution, a new guideline was enacted in 1989 that stated that a b a t e m e n t possibilities shall be given due weight in the d e t e r m i n a t i o n of liability.55 Generally, the new guideline would s t r e n g t h e n e n v i r o n m e n t a l values, have a desirable effect o n judicial practice, a n d reduce legal uncertainty. 56 This legislative i n t e n t can be given a clear interpretation u n d e r the test of unnecessary pollution, to the effect that the cost of h a r m a n d its avoidance should be explicitly balanced. It is n o t equally clear how the possibilities to prevent or reduce h a r m should affect the test of u n r e a s o n a b l e pollution. Of course, the factor of u n u s u a l harm may, as discussed, reflect an implicit cost-benefit test. Along the same lines, several of the considerations u n d e r l y i n g the factor of expectable harm may reflect a c o n c e r n for giving neighbors the right incentive to prevent or reduce harm. Thus, the real i m p o r t a n c e of the new guideline is n o t that an entirely new type of a r g u m e n t is allowed to enter. Rather, it encourages judges, a n d their advisors a n d critics, to formulate cost considerations more explicitly. In the longer run, existing patterns of justification might be r e e x a m i n e d in light of the goal of cost minimization. An effort along these lines is made in Section IV below. OTHER CONSIDERATIONS. O n e may ask whether these factors completely describe the general principles u n d e r the test of u n r e a s o n a b l e pollution. A wholly satisfactory answer to that question depends, of course, o n o n e ' s best reading of the entire case law. However, the factors treated have b e e n considered to be the most i m p o r t a n t ones. 57 O n e additional factor that has b e e n discussed is whether the social utility of pollutiong e n e r a t i n g activity is to be taken into account. This is sometimes referred to as the relevance of economic considerations.58 The p r e c e d i n g discussion has indicated, however, that e c o n o m i c considerations are e m b e d d e d in the present structure of reasoning. Thus, the discussion a b o u t e c o n o m i c considerations does n o t seem to be a real one, but only o n e of terminology.

52Rt. 1965,p. 933.

53Thisis confirmedin a SupremeCourt decisionin Rt. 1983,s. 152. r'4Rt. 1973,s. 1193. r'5"In decidingwhether somethingis unreasonableor unnecessary',due weightshallbe givento what is technically and economicallypossible to do to preventor limitthe harm." (Author'stranslationof Neighbor'sAct § 2, Section tWO).

~'6Ot.pip. nr. 33 (1988-1989) pp. 38-39. 57NOU (1982), p. 267. ~SFalkanger(1993), pp. 294-296.

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The test of unreasonable pollution: a special basis for liability. As the first two subsections have m a d e clear, the test o f unnecessary p o l l u t i o n constitutes one basis o f e n v i r o n m e n tal civil liability, a n d the guidelines discussed u n d e r the test o f u n r e a s o n a b l e p o l l u t i o n another. In this subsection, a third basis for liability is discussed. This special tolerance limit follows from the wording o f the fourth part o f § 2 in the N e i g h b o r ' s Act. T h e language o f the fourth part says that s o m e t h i n g may be u n r e a s o n a b l e pollution even if expectable o r usual, if it leads to a substantial d e t e r i o r a t i o n for a distinguishable group. To illustrate, consider investments in infrastructure. F r o m bigger o r new roads, airports, or transmitters of electricity, some n e i g h b o r s suffer substantial increases o f exposure to noise, dust, a n d exhaust, whereas others are barely affected. If the benefits, on the o t h e r hand, are equally distributed, this factor says that the courts may find it u n r e a s o n a b l e that the first g r o u p must b e a r substantial h a r m without c o m p e n s a t i o n . O f course, if the benefits accrue m o r e to parties less adversely affected, the rationale for c o m p e n s a t i o n becomes even stronger. Thus, this factor is an equality exception from the previous factors that empowers the courts to c o m p e n s a t e when ideals o f distribution are violated. However, the courts are n o t forced or c o m p e l l e d by any particular n o t i o n o f distributive goals. T h r o u g h p r e c e d e n t , a d o c t r i n e will e m e r g e to fill in what language a n d legislative history c a n n o t provide. Beyond several definitional issues, such as what should c o u n t for " a d e t e r i o r a t i o n " a n d " a distinguishable g r o u p , " there is additional a n d a m p l e space for judicial discretion. 5s~ Statutory language requires d e t e r i o r a t i o n to be "substantial." In these instances, p o l l u t i o n " m a y " be unreasonable. Given the w o r d i n g o f the statute, natural guidelines include how m u c h conditions have deteriorated, a n d how distinguishable the g r o u p is. W i t h o u t a theory o f goodness, however, it is n o t easy to evaluate evolving court practices. Given the efficiency criterion, some g u i d a n c e may be extracted from the theory o f insurance. If the n e i g h b o r is m o r e averse toward risk than the polluter, then an insurance rationale for c o m p e n s a t i o n may apply.

Summary T h r e e bases of liability u n d e r l i e the idea o f tolerance limits. T h e first basis is the test o f unnecessary pollution, which may be characterized as strict liability for u n t a k e n steps to r e d u c e clearly inefficient emissions. 6° T h e s e c o n d basis for liability is f o r m e d by three factors u n d e r the test of u n r e a s o n a b l e pollution. First, the usual h a r m factor may assist by supplying a kind o f implicit balancing o f costs a n d benefits o f a b a t e m e n t , a n d it does n o t give t e m p o r a l priority to individual projects. Second, the expectable h a r m factor makes r o o m for W i t t m a n ' s advice (see the third part of Section 1V) that the first user should foresee future efficient patterns of land use. In this sense, a weak form o f t e m p o r a l priority is supported. Third, the fact that the possibility to prevent o r r e d u c e h a r m is relevant makes t e m p o r a l priority problematic. Thus, it might be possible to influence the choice of activity levels a n d location in a p r o p e r way. T h e third basis for liability is f o r m e d by the fourth factor u n d e r the test of unreasonable pollution. This equality exception creates a category o f n e i g h b o r s entitled to compensation. The cost o f this is that some n e i g h b o r s ' incentives to avoid h a r m are

r'~Rt. 1996, s. 232. ~%ee also Rt. 1874, p. 409; Rt. 1915, p. 337; Rt. 1965, p. 933; Rt. 1969, p. 757; Rt. 1971, p. 387; Rt. 1972, p. 142; Rt. 1979, p. 37..&skeland's argnment is to a similar effect, although he does not use the term efficiency.

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blurred. In contrast to the first two bases o f liability, this factor seems to make courts in n e e d o f a theory o f redistribution, which may o r may n o t i n c l u d e insurance considerations.

IV. Temporal Priority What is Temporal Priority ? A particularly contested p a r t o f tolerance limit doctrines is the possibility that the sequence o f moves d e t e r m i n e s the question o f liability. This n o t i o n o f t e m p o r a l priority implies t h a t the p o l l u t e r is liable if he is second, a n d that the p o l l u t e r is free from p o l l u t i o n if he is first. 61 Thus, t e m p o r a l priority may serve as a basis for liability in some contexts, a n d as a defense against liability in others. To explicate clearly a c o n c e p t o f t e m p o r a l priority, o n e has to specify at what p o i n t in time possession was taken. T h e r e are several possibilities to specify what counts as possession. 62 O n e possibility is to focus on the timing o f activities, regardless o f the actors. Alternatively, the focus can be on the timing o f buying, inheriting, a n d o t h e r sources of title. 63

What is the Authority for Temporal Priority ? Norwegian legal scholars m a k e c o m p e t i n g descriptive claims as to the legal status o f t e m p o r a l priority. O n e claim is that t e m p o r a l priority is an i m p o r t a n t a n d often decisive factor in case law. Thus, t e m p o r a l priority is m o r e o r less the m a i n rule, o r r o u g h rule o f t h u m b , that explains the m a i n thrust o f case law. Within this explanatory d o m a i n , t h e r e is only r o o m for limited categories o f exception. This a m o u n t s to a b r i g h t line rule story a b o u t the test o f u n r e a s o n a b l e pollution. 64 A minority view is that the b r i g h t line rule story o f t e m p o r a l priority is only right for certain m a j o r undertakings. 65 In this section, the legal sources are surveyed. T h e doctrinal starting p o i n t is that language speaks a b o u t a s t a n d a r d of u n r e a s o n a b l e pollution. T h e c o n t e n t o f the s t a n d a r d is d e t e r m i n e d by a weighing process, in which the various guidelines (which are discussed in the s e c o n d subsection o f the third part o f Section III) enter. O n a plain r e a d i n g o f these guidelines, n o n e o f t h e m m e n t i o n s t e m p o r a l priority. To the contrary, the construction o f the test o f u n r e a s o n a b l e pollution as a b r o a d s t a n d a r d c o m b i n e d with guidelines to assist the weighing process does n o t s u p p o r t a b r i g h t line rule o f any kind. Still, there is some authority for talk o f a category o f t e m p o r a l priority. First, the l a n g u a g e now expressing the equality rule (see the third subsection o f the third part o f Section III) p r e s u p p o s e s that usual o r expectable h a r m is n o t unreasonable. It is clear from statutory history that the tort reformists who i n t r o d u c e d this rule c o n s i d e r e d t e m p o r a l priority as the m a i n rule from which to state an e x c e p t i o n motivated by distributional concerns. Second, a r e a d i n g of the case law may s u p p o r t a principle o f

61Notions of temporal priority are related to the idea of first possession; indeed, they may be seen as applications of that idea. 62In Norwegian law this is called "etablering." 6SFormal categories a n d procedures to take title are original, derivative (buying, inheriting, and receiving gifts), and extinctive (like good faith purchase a n d creditor extinction). 64This view has gained support during the period of the airport cases (1973-1982) (see section V) and the proposal for section four was based on this description [see NOU (1982), pp. 69-73]. 6~This view was put forth in 1974, a n d the original proposal in 1957, for the structure of §2 in the Neighbor's Act was based on this view [Nygard (1974), pp. 194-206].

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t e m p o r a l priority. F u r t h e r discussion must distinguish between t e m p o r a l priority as (1) a primafacie case a n d (2) as a defense.

Temporalprionty as a primafacie case. T e m p o r a l priority as a primafacie case is that the n e i g h b o r can claim c o m p e n s a t i o n if he moves into the area before the polluter. Thus, the question in this section is to what extent the p o l l u t e r is liable because he was second. Even if statutory language is silent, the factor o f expectable h a r m seems to limit the possibility of a strong principle o f t e m p o r a l priority. T h e expectable h a r m guideline says that when you e n t e r a n e i g h b o r h o o d , you must tolerate h a r m that should be expected. If it should be expected, the p o l l u t e r may n o t be liable even if he was second. This viewpoint lies b e h i n d a body o f case law where h o m e o w n e r s are d e n i e d c o m p e n s a t i o n from new infrastructure with harmful side effects, like highways a n d power carriers. 66 In some of these cases, the viewpoint has b e e n b r o a d e n e d to m e a n that increased h a r m from a natural societal d e v e l o p m e n t must be tolerated. Thus, c o m p e n s a t i o n has b e e n d e n i e d even if new infrastrucure could n o t reasonably be e x p e c t e d when the n e i g h b o r s moved to the area. This deviance from the principle o f t e m p o r a l priority has carried over to a case o f industrial pollution already discussed. In Jernverket, the Norwegian S u p r e m e C o u r t d i d n o t apply a principle o f t e m p o r a l priority when it came to three n e i g h b o r s that built their h o m e s before the steel p l a n t was p l a n n e d in 1946. In the lower court, these parties h a d prevailed because their p r i o r use justified a m o r e rigid tolerance limit than for neighbors that built after 1946. F o r the S u p r e m e Court, it was clear that the unreasonable pollution o c c u r r e d from 1962 to 1970 (due to an increase o f h a r m ) , a n d that n e i g h b o r s that established residence between 1946 a n d 1962 could n o t claim c o m p e n sation because o f the factor o f expectability. Contrary to the lower court, the S u p r e m e Court did not treat the earlier users differently from the later users. Instead, it h e l d that the early neighbors h a d h a d the same advantages a n d disadvantages as the rest of the p o p u l a t i o n in the years when the activity h a d b e e n built up. W h e n they took part in this d e v e l o p m e n t , the expectable test could n o t be i m p l e m e n t e d with a fixed date antedating 1946. Instead, the question for all parties was w h e t h e r the c h a n g e in p r o d u c t i o n m e t h o d in 1962 was expectable in the i m m e d i a t e p e r i o d before. T h e Norwegian S u p r e m e Court answered affirmatively a n d d e n i e d compensation, regardless o f notions o f t e m p o r a l priority. In sum, it is clear that t e m p o r a l priority does n o t provide a solid prima facie case for liability. Temporalpriority as a defense. T h e question in this section is to what e x t e n t the p o l l u t e r is free from liability because he located first. Explicit talk o f t e m p o r a l priority as a defense can only be f o u n d in four cases on a i r p o r t noise where plaintiffs m o v e d to the a i r p o r t area after the a i r p o r t was built. 67 In every case, the S u p r e m e C o u r t d e n i e d compensation. In the first two cases, the S u p r e m e Court explicitly d e n i e d c o m p e n s a t i o n on the g r o u n d s that plaintiffs h a d chosen to c o m e to the a i r p o r t a n d should b e a r the risk o f undesirable consequences o f this locality choice. In the third, t e m p o r a l priority

66Rt. 1969, p. 642; Rt. 1972, p. 377; Rt. 1983, p. 920; Rt. 1996, p. 232. ~7Although the cases also involved other plaintiffs, for the purpose of this exposition the focus will be concentrated on these plaintiffs.

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was explicitly a n n o u n c e d as the m a i n rule in the category at hand. In the fourth, the S u p r e m e C o u r t articulated the rule o f t e m p o r a l priority a n d e l a b o r a t e d on its details. T h e facts in the a i r p o r t noise cases have some specific features that are n o t p r e s e n t in all p o l l u t i o n cases. First, the state is the owner a n d the o p e r a t o r o f the airport. Second, the localization o f the a i r p o r t is the result o f an extensive d e c i s i o n m a k i n g process, which involves the political process to a greater e x t e n t than usual in l a n d use decisions. Third, the a i r p o r t involves h u g e investments that alter the c h a r a c t e r o f the n e i g h b o r h o o d . Thus, the a i r p o r t noise rule has an u n c e r t a i n d o m a i n . Similar contexts i n c l u d e railroads, roads, power plants, a n d some industrial plants, for instance public waste sites. 6s Different contexts include small a n d medium-sized c o m m e r c i a l enterprises, s h o o t i n g fields, fish farms, a n d agricultural plants. It is n o t surprising, therefore, that o t h e r case law n e i t h e r clearly expresses n o r consistently supports a rule o f t e m p o r a l priority. Because guidelines were codified 1961 a n d r e f o r m e d in 1989, cases fall in to three groups. T h e first g r o u p consists o f cases before 1961, which were d e t e r m i n e d on the basis of the statute o f 1887. This statute stated that it was relevant to the d e t e r m i n a t i o n of liability whether, before the n e i g h b o r s came, t h e r e existed factories or similar activities that now are harmful. Thus, it is n o t surprising that t e m p o r a l priority was a factor in these cases. 69 T h e s e c o n d g r o u p consists o f cases between 1961 a n d 1989, which were d e t e r m i n e d on .the basis o f the codified set o f guidelines. A m o n g these cases, an e x c e p t i o n from t e m p o r a l priority can be f o u n d in the case o f Hunton B r u k . 7° In that case, a factory h a d cqr~e to the a r e a in 1889, b u t started to p r o d u c e a new p r o d u c t in 1957 with new technology. F o u r h o m e o w n e r s that came to the area m u c h later than the factory sued. T h e factory a r g u e d that it was in the area first a n d that the new m e t h o d s o f p r o d u c t i o n ( a n d the h a r m f u l side effects) were a natural a n d e x p e c t a b l e d e v e l o p m e n t o f this activity. A c c o r d i n g to the Norwegian S u p r e m e Court, however, the factory was liable. A decisive factor was that the h a r m was o f a new form, a n d that it was substantially g r e a t e r than that previously g e n e r a t e d by activities in the n e i g h b o r h o o d . This reasoning may be consistent with efficient resource allocation b u t does n o t follow from the i d e a of t e m p o r a l priority. T h e third g r o u p consists o f cases after 1989, when e n v i r o n m e n t a l tort r e f o r m introd u c e d the two new guidelines to d e t e r m i n e the test o f u n r e a s o n a b l e p o l l u t i o n (see the third p a r t o f the s e c o n d subsection o f the third p a r t o f Section III, a n d the third subsection o f the third p a r t o f Section III). Both new guidelines may s u p p o r t a r g u m e n t s that c o n t r a d i c t the p r i n c i p l e o f t e m p o r a l priority, b u t to this day courts have n o t b e e n c h a l l e n g e d to r e t h i n k the doctrine. However, outside a i r p o r t noise cases, t e m p o r a l priority is seldom, if ever, explicitly stated as an a r g u m e n t against liability. T h e implication for the i n t e r p r e t a t i o n of " u n r e a s o n a b l e p o l l u t i o n " may be s o m e t h i n g like this. If it is j u s t a factual p a t t e r n that n e i g h b o r s c o m i n g to the nuisance t e n d n o t to get c o m p e n s a t i o n , a n d that late-coming polluters t e n d to be liable, this may be e x p l a i n e d a n d justified by the possibilities o f the parties to p r e v e n t or r e d u c e harm. Intuitively, it seems r e a s o n a b l e to assume that a party that has n o t yet located has o n e m o r e way to avoid h a r m at relatively low cost. In m a n y contexts, o n e m i g h t get prevention or r e d u c t i o n o f h a r m at the lowest cost by m a k i n g this party liable. Thus, a principle o f cost 68Rt. 1995, p. 1303. 69Rt. 1910, p. 347; Rt. 1921, p. 520; a n d Rt. 1948, p. 907. 7°Rt. 1964, p. 609.

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minimization may u n d e r l i e a p a t t e r n o f cases that seems to be consistent with a principle o f t e m p o r a l priority. In the future, such outcomes may be justified by invoking the guideline that says that a b a t e m e n t possibilities shall be given d u e weight in the d e t e r m i n a t i o n of liability. In sum, authority is somewhat inconclusive on the question of t e m p o r a l priority. In this situation, policy a r g u m e n t s are particularly relevant. Some a r g u m e n t s have already b e e n made. In 1957, the codifiers criticized the idea o f t e m p o r a l priority on the g r o u n d s that if first users are privileged, the undesirable c o n s e q u e n c e will be that p r e t e n d e r s will race to exclude one another, va In 1982, the tort reformers criticized t e m p o r a l priority for p r o d u c i n g undesirable inequality o f b u r d e n s i m p o s e d by p o l l u t i n g activity. 79 Thus, t e m p o r a l priority has b e e n criticized on b o t h d e t e r r e n c e as well as distributional grounds. In the following section, an a t t e m p t is m a d e to make this policy r e a s o n i n g somewhat m o r e elaborate. Because cost considerations have statutory authority, a focus on efficient resource allocation seems a p p r o p r i a t e .

Does Temporal Priority Have Desirable Consequences ? In this section, the question is w h e t h e r a strong principle of t e m p o r a l priority has desirable consequences, given the normative criterion of efficient resource allocation. Using an efficiency m o d e l a p p r o a c h , W i t t m a n (1980) examines the a p p r o p r i a t e weight o f being first t h r o u g h a two-step p r o c e d u r e where the first step is to define the efficient sequence o f moves in a m o d e l with two time periods (1 a n d 2), a n d two possible locations ( G o o d a n d Bad, d e p e n d i n g u p o n the level o f profits). In the first time period, the p o l l u t e r is e i t h e r on the G o o d land or o n the Bad land. T h e n e i g h b o r is somewhere else in Period 1, b u t has to choose e i t h e r the G o o d l a n d or the Bad l a n d in Period 2. T h e question is where the p o l l u t e r should locate in P e r i o d 1, a n d where the p o l l u t e r a n d the n e i g h b o r should locate in Period 2. U n d e r the assumptions that p o l l u t i o n is always profitable, a n d that b u i l d i n g costs b e c o m e sunk costs when they are incurred, Wittman derives four possible efficient sequences, d e p e n d i n g on the p o l l u t e r ' s profit function a n d the n e i g h b o r ' s preferences. W i t t m a n points o u t that the p o l l u t e r should be given extra consideration in the optimal choice o f location if he s h o u l d have b e e n on the G o o d land in P e r i o d 1. In this situation, relocation costs for the p o l l u t e r are relevant in d e t e r m i n i n g the efficient p a t t e r n o f location in P e r i o d 2. Relocation costs are irrelevant, however, if the p o l l u t e r should have b e e n on the Bad land in P e r i o d 1. Thus, he is n o t given extra consideration as first user in this situation. In the equilibrium analysis, Wittman considers the rule that the p o l l u t e r is free to pollute a n d the alternative rule that the n e i g h b o r is free to stop pollution, which is to say that the p o l l u t e r is liable for pollution. His m a i n conclusion is that the p o l l u t e r should be free to pollute if he should have located on the G o o d l a n d in b o t h time periods. If, however, the polluter should have located on the Bad l a n d in b o t h periods, or j u s t in Period 2, he should be liable to stop at the will o f the neighbors. A general inference from the analysis is that foreseeability is i m p o r t a n t to the efficient d e t e r m i n a t i o n o f liability. U n d e r an efficient liability standard, the first user has a duty to anticipate what will h a p p e n in P e r i o d 2. Thus, foreseeability should be a factor in the sense that the p r i o r user should foresee future states o f the world a n d make an evaluation on the basis o f future i n c o m e streams. Ideally, he will p r e d i c t in what time 71Sivillovbokutwalet(1957), p. 19. 72NOU (1982), pp. 76-77.

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p e r i o d his use b e c o m e s inefficient. O n that basis, he can calculate w h e t h e r investments today will be profitable. If he invests on a calculus, he has priority for as l o n g as it is efficient to c o n t i n u e this use, a n d this will b a r liability toward s e c o n d users. If he invests regardless o f the calculus, he does n o t have priority a n d will be liable to s e c o n d users. Thus, he has a duty to act on a forecast o f what will be the efficient p a t t e r n o f l a n d use. N e i t h e r W i t t m a n ' s m o d e l n o r a reasonable i n t e r p r e t a t i o n o f the m o d e l o f sequential acts in accidental tort e x a m i n e d by Shavell (1983) seem to s u p p o r t an unqualified principle o f t e m p o r a l priority. It is efficient to d e n y liability in circumstances where the s e c o n d user is the c h e a p e s t cost avoider, but t e m p o r a l priority lumps these instances t o g e t h e r with situations where the first user can abate m o r e cheaply than the second. T h e n e x t question is w h e t h e r institutional considerations can a d d s o m e t h i n g to this starting point. Assume that new possibilities to abate p o l l u t i o n imply lower a b a t e m e n t costs. If there is a negative shift in marginal a b a t e m e n t costs, the optimal level o f a b a t e m e n t will increase. Correspondingly, the efficient level o f h a r m will be reduced. T h e question is w h e t h e r c h e a p e r a b a t e m e n t o r c l e a n u p costs s h a r p e n the duty to abate o r clean u p a n d thus lower the level o f tolerable harm, or w h e t h e r a principle o f t e m p o r a l priority should prevail. Different legal institutions may r e s p o n d to r e d u c e d levels o f efficient harm. First, a public agency may withdraw the p o l l u t i o n p e r m i t o r increase the duty to abate o r clean up. Second, new covenants may be e n t e r e d into o r old ones revised. Third, the level of tolerable h a r m d e t e r m i n e d by the civil liability r e m e d y may decrease. If the political process or the contracting process g e n e r a t e instant a n d efficient responses to c h a n g i n g cost conditions, t h e r e will be no reason for the courts to c h a n g e the level o f tolerable h a r m i n d e p e n d e n t l y . In the real world there are vast costs o f a d m i n i s t r a t i o n a n d contracting, however, so no institution works without substantial friction. With i m p e r f e c t institutions, some permits will be left u n c h a n g e d a n d m a n y contracts will be hypothetical. If the level of tolerable h a r m is c h a n g e d in the liability system, a signal will be sent to the p o l l u t e r to increase a b a t e m e n t or c l e a n u p activities. This will r e d u c e d e a d w e i g h t losses a n d save transaction a n d administrative costs. Some traditional legal concerns may reflect rationales for a d o p t i n g the principle o f t e m p o r a l priority in some instances. C o n c e r n s that o n e may want to include in the analysis are the n e e d for legal certainty, the c o n c e r n for litigation costs, a n d the possibility o f legal errors. These c o n c e r n s are n o t exclusively relevant for the issue o f t e m p o r a l priority, b u t t h e question h e r e is how they relate to this topic. T h e first factor to i n c l u d e is legal uncertainty. With o p e n - e n d e d b a l a n c i n g instead o f a b r i g h t line rule, the p o l l u t e r may have to b e a r some additional risk. A n d if the p o l l u t e r prefers sure o u t c o m e s over u n c e r t a i n ones, this is an extra cost. How costly o p e n - e n d e d b a l a n c i n g is, however, d e p e n d s o n how the liability rule is tailored. U n d e r the Norwegian liability scheme, what m i g h t be called a " d i f f e r e n c e p r i n c i p l e " o f liability is in place. This principle says that the n e i g h b o r is only entitled to c o m p e n s a t i o n for that p a r t o f the p o l l u t i o n that is u n r e a s o n a b l e . T h e tolerable a m o u n t o f p o l l u t i o n s h o u l d be subtracted before d a m a g e s are calculated. This scheme reduces the costs o f uncertainty by lowering marginal liability. A n o t h e r effect o f u n c e r t a i n t y c o n c e r n i n g liability may be a r e d u c t i o n in investment in the p o l l u t i n g activity. T h e reason is that the p o l l u t e r ' s future costs will increase a n d his future i n c o m e will b e c o m e m o r e uncertain. But if future a b a t e m e n t costs are very uncertain, this s h o u l d be reflected in legal outcomes. It is efficient that polluters take this uncertainty into a c c o u n t [Landes a n d Posner (1987)].

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T h e s e c o n d factor is litigation costs. In practice, the use o f lawyers a n d courts consumes great resources. This may be efficient, however, if the parties p r o d u c e a n d transmit new i n f o r m a t i o n to each o t h e r a n d the court. T h e n the use o f resources between the parties will improve a n d so will the court practice c o n c e r n i n g tolerable harm. T h e parties have incentives to e c o n o m i z e on litigation costs because they must b e a r t h e m themselves. T h e third factor is systematic court errors. Will courts systematically set wrong standards? This d e p e n d s o n the source o f failure. O n e p r o b l e m may be that the courts lack the i n f o r m a t i o n to set the tolerable level at the efficient level. Quite a n o t h e r is that the courts p r o m o t e goals that are inconsistent with efficient resource allocation. W h e t h e r this is a p p r o p r i a t e d e p e n d s on w h e t h e r the alternative goal could have b e e n achieved m o r e accurately t h r o u g h a n o t h e r legal mechanism. T h e answer to this question dep e n d s on which goal we consider. O n balance, there seems to be no firm basis in efficiency reasoning for the principle o f t e m p o r a l priority as a b a r r i e r to the resetting o f the level o f tolerable h a r m within the liability system. Thus, the a r g u m e n t is m a d e for a rule that balances the interests o f the parties to the conflict instead o f a b r i g h t line rule that fixes the tolerable level of h a r m at a given level. Conclusion O n the basis o f the above reasoning, it seems like most t e m p o r a l priority cases could be resolved with some kind of exception for public projects that have b e e n a p p r o v e d by a t h o r o u g h political process, a n d that t e m p o r a l priority s h o u l d n o t get m u c h i n d e p e n d e n t weight in the run-of-the-mill cases. This solution seems b o t h doctrinally defensible a n d economically desirable. Thus, there is little s u p p o r t in efficiency considerations for expansive talk a m o n g advisors a b o u t the use o f t e m p o r a l priority notions. O n the contrary, without s u p p o r t from o t h e r policy considerations, it seems desirable to r e a d the a i r p o r t case law, which adopts a t e m p o r a l priority rule, narrowly.

V. Tolerance Limits, Temporal Priority, and Efficiency In this section c o m m e n t s are m a d e on the relationship between the s t a n d a r d o f unnecessary or u n r e a s o n a b l e pollution a n d t e m p o r a l priority, a n d between efficiency a n d the principles that u n d e r l i e this liability standard. Between the s t a n d a r d o f unnecessary or u n r e a s o n a b l e p o l l u t i o n a n d t e m p o r a l priority certain tensions arise because o f b o t h c o n c e p t u a l a n d formal differences. A formal difference is that the b a l a n c i n g rule is m u c h m o r e strongly reflected in statutory language than is t e m p o r a l priority. Thus, o n e tension is between statutory interpretation a n d "unwritten law." A conceptual difference between the s t a n d a r d o f unnecessary o r u n r e a s o n a b l e pollution a n d t e m p o r a l priority is that the s t a n d a r d o f unnecessary o r u n r e a s o n a b l e pollution is a b a l a n c i n g rule, whereas t e m p o r a l priority is a b r i g h t line rule. As a consequence, they differ in what kind o f i n f o r m a t i o n they require a n d how much. Thus, a n o t h e r tension is between factors a n d rules. Courts should, d u e to possible incentive effects, make a conscious choice of how m u c h to rely on factors a n d how m u c h to rely on rules. In this paper, a r g u m e n t s have b e e n given for n o t e x p a n d i n g t e m p o r a l priority, b u t instead for m a k i n g the balancing rule m o r e i n f o r m e d by efficiency considerations. How the legal principles relate to cost-benefit notions must be discussed separately for the three different bases o f liability they constitute. First, there are some legal

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principles that can be taken to describe desirable polluter behavior. Most prominently, u n d e r the test of unnecessary pollution, the polluter may be held to a cost-benefit standard of care. However, because i n f o r m a t i o n a b o u t ways to abate a n d how m u c h it costs may be scarce, this basis for liability does n o t guarantee optimal behavior. Some of this imperfection may be overcome by the factor of u n u s u a l h a r m u n d e r the test of u n r e a s o n a b l e pollution, because what is usual may reflect an efficient c o m m u n i t y standard. Second, u n d e r the general principles of u n r e a s o n a b l e pollution, the rule may be characterized as strict polluter liability with the defense of contributory negligence. However, case law c o n c e r n i n g the factor of expectable h a r m seems to imply some strict n e i g h b o r liability as well. W h e t h e r the factor of expectable h a r m worries too m u c h a b o u t the activity level of neighbors, relative to the activity level of polluters, is hard to say. Third, u n d e r the special rule that regulates what a m o u n t s to u n r e a s o n a b l e pollution, characterization is difficult. Substantial deterioration for a distingiushable group may be applicable where it is relatively i m p o r t a n t to regulate the activity level of the polluter, a n d / o r where an insurance rationale for c o m p e n s a t i o n applies. In sum, there should be some incentives o n each side to abate, as well as a reallocation of some risks that are affected by the interpretation of § 56 of the Norwegian Pollution Control Act. W h e t h e r or n o t this liability o n the whole is worth its administrative costs is hard to say.

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