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Strict Liability as a Deterrent in Toxic Waste Management: Empirical Evidence from Accident and Spill Data

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  • Austin, David
  • Alberini, Anna

Abstract

This paper explores the issue of whether strict liability imposed on polluters has served to reduce uncontrolled releases of toxics into the environment. Strict liability should create additional incentives for firms to handle hazardous substances more carefully, thus reducing the future likelihood of uncontrolled releases of toxics. However, the size of these incentives may vary according to the size of a firm's assets, since asset size is the ultimate limit on a firm's liability. We are therefore interested to see whether imposing strict liability for the cost of remediation at hazardous waste sites has encouraged firms to handle toxic materials more carefully and has uniformly reduced the incidence of toxic spills, or whether the effect is dependent on firm size and other factors. To answer these questions, we exploit the variation in state hazardous waste site laws across states and over time. We use data on accidents and spills involving hazardous substances coming from a comprehensive database of events reported to the US EPA under their Emergency Response Notification System (ERNS), and fit regressions relating the frequency of spills of selected chemicals used in manufacturing to the type of liability in force in a state. We control for the extent of manufacturing activity in the state, and include in the regression other program features that might alter firms' expected outlays in the event of an accident, and thus affect firms' incentives to take care. Results vary with the chemical being analyzed. For some chemicals, such as halogenated solvents, the presence of strict liability does not provide any additional explanatory power for the number of spills beyond what is achieved by the number of establishments and the sectoral composition of manufacturing. For other families of chemicals (acids, ammonia and chlorine), we find that the impacts of manufacturing activities on the number of spills in each state do vary systematically with the liability regime. In particular, it appears that under strict liability small firms are responsible for a disproportionate number of spills. Since strict liability states tend to have more manufacturing firms, and more small manufacturing firms, these factors serve to increase the number of spills of these chemicals in strict liability states.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-98-16.

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Date of creation: 01 Feb 1998
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Handle: RePEc:rff:dpaper:dp-98-16

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References

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  1. Hilary Sigman, 1996. "Cross-Media Pollution: Responses to Restrictions on Chlorinated Solvent Releases," Land Economics, University of Wisconsin Press, vol. 72(3), pages 298-312.
  2. Mark E. Eiswerth, 1993. "Using Dynamic Optimization for Integrated Environmental Management: An Application to Solvent Waste Disposal," Land Economics, University of Wisconsin Press, vol. 69(2), pages 168-180.
  3. T. Randolph Beard, 1990. "Bankruptcy and Care Choice," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 626-634, Winter.
  4. Bruce A. Larson, 1996. "Environmental Policy Based on Strict Liability: Implications of Uncertainty and Bankruptcy," Land Economics, University of Wisconsin Press, vol. 72(1), pages 33-42.
  5. Ringleb, Al H & Wiggins, Steven N, 1990. "Liability and Large-Scale, Long-term Hazards," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 574-95, June.
  6. Pitchford, Rohan, 1995. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk," American Economic Review, American Economic Association, vol. 85(5), pages 1171-86, December.
  7. James J. Opaluch & Thomas A. Grigalunas, 1984. "Controlling Stochastic Pollution Events through Liability Rules: Some Evidence from OCS Leasing," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 142-151, Spring.
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Cited by:
  1. Austin, David & Alberini, Anna, 1999. "Accidents Waiting to Happen: Liability Policy and Toxic Pollution Releases," Discussion Papers dp-99-29, Resources For the Future.
  2. Angelova, Vera & Attanasi, Giuseppe & Hiriart, Yolande, 2012. "Relative Performance of Liability Rules: Experimental Evidence," TSE Working Papers 12-304, Toulouse School of Economics (TSE), revised Sep 2012.
  3. Hilary Sigman, 2009. "Environmental Liability and Redevelopment of Old Industrial Land," NBER Working Papers 15017, National Bureau of Economic Research, Inc.
  4. Eberhard Feess & Gerd Muehlheusser & Ansgar Wohlschlegel, 2009. "Environmental liability under uncertain causation," European Journal of Law and Economics, Springer, vol. 28(2), pages 133-148, October.
  5. Wayne B. Gray & Jay P. Shimshack, 2011. "The Effectiveness of Environmental Monitoring and Enforcement: A Review of the Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 3-24, Winter.
  6. Mary Evans & Lirong Liu & Sarah Stafford, 2011. "Do environmental audits improve long-term compliance? Evidence from manufacturing facilities in Michigan," Journal of Regulatory Economics, Springer, vol. 40(3), pages 279-302, December.
  7. Bhole, Bharat & Wagner, Jeffrey, 2008. "The joint use of regulation and strict liability with multidimensional care and uncertain conviction," International Review of Law and Economics, Elsevier, vol. 28(2), pages 123-132, June.
  8. van 't Veld, Klaas, 2006. "Hazardous-industry restructuring to avoid liability for accidents," International Review of Law and Economics, Elsevier, vol. 26(3), pages 297-322, September.
  9. Guerrero, Santiago & Innes, Robert, 2008. "Statutory Rewards to Environmental Self-Auditing: Do They Reduce Pollution and Save Regulatory Costs? Evidence from a Cross-State Panel," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6204, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  10. Sam, Abdoul G., 2009. "Impact of Government-Sponsored Pollution Prevention Practices on Environmental Compliance and Enforcement: Evidence from a Sample of US Manufacturing Facilities," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49306, Agricultural and Applied Economics Association.
  11. Abdoul Sam, 2010. "Impact of government-sponsored pollution prevention practices on environmental compliance and enforcement: evidence from a sample of US manufacturing facilities," Journal of Regulatory Economics, Springer, vol. 37(3), pages 266-286, June.
  12. van 't Veld, Klaas & Shogren, Jason F., 2012. "Environmental federalism and environmental liability," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 105-119.
  13. Suzi Kerr, 2013. "Managing Risks and Tradeoffs Using Water Markets," Working Papers 13_13, Motu Economic and Public Policy Research.

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