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Liability for Past Environmental Contamination and Privatization

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  • Dietrich Earnhart

Abstract

This paper examines the role ofliability for past environmental contaminationin the privatization processes of Central andEastern Europe. In particular, it establishes alink between a risk-averse investor's amount ofinformation regarding the extent of pastenvironmental contamination (and its cleanupcosts) and the investor's willingness to payfor a particular enterprise, i.e., bid. As theinvestor obtains a more precise estimate of theuncertain cleanup costs, the investor facesless risk; therefore, the investor's riskpremium falls and the investor's bid rises.This link generates four hypotheses regarding aprivatization agency's responses to theinvestor's knowledge of clean-up costs. Copyright Kluwer Academic Publishers 2004

Suggested Citation

  • Dietrich Earnhart, 2004. "Liability for Past Environmental Contamination and Privatization," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 29(1), pages 97-122, September.
    • Handle: RePEc:kap:enreec:v:29:y:2004:i:1:p:97-122
    DOI: 10.1023/B:EARE.0000035452.76736.51
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    1. Anthony Heyes (ed.), 2001. "The Law and Economics of the Environment," Books, Edward Elgar Publishing, number 2037.
    2. Farber, Stephen, 1991. "Regulatory schemes and self-protective environmental risk control: a comparison of insurance, liability, and deposit/refund systems," Ecological Economics, Elsevier, vol. 3(3), pages 231-245, September.
    3. Randall Bluffstone & Theodore Panayotou, 2000. "Environmental Liability and Privatization in Central and Eastern Europe: Toward an Optimal Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(4), pages 335-352, December.
    4. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
    5. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    6. Segerson Kathleen, 1993. "Liability Transfers: An Economic Assessment of Buyer and Lender Liability," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages 46-63, July.
    7. Sigman, Hilary, 1998. "Liability Funding and Superfund Clean-Up Remedies," Journal of Environmental Economics and Management, Elsevier, vol. 35(3), pages 205-224, May.
    8. Segerson, Kathleen, 1989. "Risk and incentives in the financing of hazardous waste cleanup," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 1-8, January.
    9. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
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    Citations

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    Cited by:

    1. Anke D. Wurzbacher, 2004. "Dynamic Ecological Constraints to Economic Growth," Department of Economics - Working Papers Series 909, The University of Melbourne.
    2. Dietrich Earnhart & Lubomir Lizal, 2002. "Effects of Ownership and Financial Status on Corporate Environmental Performance," CERGE-EI Working Papers wp203, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    3. Satoru Komatsu & Andrey Kalugin & Shinji Kaneko, 2012. "Allocating Costs of Environmental Management among Generations: A Case of Environmental Liabilities in Transition Economies," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 19(2), pages 225-243, November.
    4. Leroux, Anke D. & Creedy, John, 2007. "Optimal land conversion and growth with uncertain biodiversity costs," Ecological Economics, Elsevier, vol. 61(2-3), pages 542-549, March.
    5. repec:ebl:ecbull:v:17:y:2006:i:5:p:1-9 is not listed on IDEAS
    6. Bluffstone, Randall, 2007. "Privatization and contaminated site remediation in Central and Eastern Europe: Do environmental liability policies matter?," Ecological Economics, Elsevier, vol. 63(1), pages 31-41, June.
    7. Earnhart, Dietrich & Lizal, Lubomir, 2006. "Effects of ownership and financial performance on corporate environmental performance," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 111-129, March.
    8. Shuichi Ohori, 2006. "Trade liberalization, consumption externalities and the environment: a mixed duopoly approach," Economics Bulletin, AccessEcon, vol. 17(5), pages 1-9.

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    More about this item

    Keywords

    environmental contamination; liability; rivatization; risk;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

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