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Liability for Past Environmental Contamination and Privatization

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Author Info
Earnhart, Dietrich
Abstract

This paper examines the role of liability for past environmental contamination in the privatization processes of Central and Eastern Europe. The theoretical section establishes a link between a risk-averse investor’s amount of information regarding the extent of past environmental contamination (and its cleanup costs) and the investor’s willingness to pay for a particular enterprise, i.e., bid. As the investor obtains a more precise estimate of the uncertain cleanup costs, the investor faces less risk; therefore, the investor’s risk premium falls and the investor’s bid rises. This link generates four hypotheses regarding a privatization agency’s responses to the investor’s knowledge of cleanup costs. The empirical section of this paper proposes to test these hypotheses with forthcoming analysis using data from the Czech Republic.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2571.

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Date of creation: Sep 2000
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Handle: RePEc:cpr:ceprdp:2571

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Related research
Keywords: Environmental Contamination; Liability; Privatization; Risk;

Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Randall Bluffstone & Theodore Panayotou, 2000. "Environmental Liability and Privatization in Central and Eastern Europe: Toward an Optimal Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(4), pages 335-352, December. [Downloadable!] (restricted)
  2. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March. [Downloadable!] (restricted)
  3. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lubomír Lízal & Dietrich Earnhart, 2002. "Effects of Ownership and Financial Status on Corporate Environmental Performance," William Davidson Institute Working Papers Series 492, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  2. Anke D. Wurzbacher, 2004. "Dynamic Ecological Constraints to Economic Growth," Department of Economics - Working Papers Series 909, The University of Melbourne. [Downloadable!]
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