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Retroactive Liability and Future Risk: The Optimal Regulation of Underground Storage Tanks

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  • Boyd, James

    ()
    (Resources for the Future)

  • Kunreuther, Howard

Abstract

The optimal design of environmental liability policy focuses on two primary policy issues: the cleanup of existing sources of pollution and the definition and enforcement of policies to promote prospectively efficient environmental risk reduction. Through the analysis of a policy toward a pervasive environmental risk--leaking underground storage tanks--we analyze the effectiveness of an existing policy governing retroactive and prospective liability issues and suggest ways in which that policy can be improved. While we find some theoretical support for the public financing of UST cleanups, we also find the current system to be flawed in its implementation. In general, the paper argues that public financing of past pollution cleanup costs can lead to greater future risk deterrence by allowing firms to more fully internalize the costs of future environmental risks. However, if it is practically or politically impossible to limit public financing to retroactive liabilities alone, the deterrent effect of such a system is vastly reduced.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-96-02.

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Date of creation: 01 Oct 1995
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Handle: RePEc:rff:dpaper:dp-96-02

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  1. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
  2. Boyd, James & Ingberman, Daniel E, 1994. "Noncompensatory Damages and Potential Insolvency," The Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 895-910, June.
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Cited by:
  1. Robert P. Berrens & Alok K. Bohara & Amy Baker & Ken Baker, 1999. "Revealed preferences of a state bureau: Case of New Mexico's underground storage tank program," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 18(2), pages 303-326.

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