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Environmental Liability and Privatization in Central and Eastern Europe: Toward an Optimal Policy


  • Randall Bluffstone
  • Theodore Panayotou


It has been estimated that the costs of remediating contaminated sites in Central and Eastern Europe (CEE) will be very high. These contingent environmental liabilities have emerged precisely at the time CEE countries are attempting to privatize their capital stocks, creating major challenges for privatization agencies. It is also generally agreed that an inadequate handling of these liabilities in the past has reduced sales of state-owned enterprises in Central and Eastern Europe.This paper uses an analytical model to identify optimal policies for minimizing the damage to privatization processes from environmental liabilities. Policy simulations are conducted which evaluate the effects of the use of liability indemnifications and environmental audits on privatization sales, prices and government revenues net of environmental costs. The major finding of the paper is that goals to mitigate the effects of environmental liability on privatizations and maximize government net revenues from privatization sales require equivalent environmental liability policies. Both goals require optimal provision of information and indemnifications to investors, and moreover it is found that the two policies are complementary rather than substitutes. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • 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.
  • Handle: RePEc:kap:enreec:v:17:y:2000:i:4:p:335-352
    DOI: 10.1023/A:1026460605963

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    References listed on IDEAS

    1. Gray, Cheryl W, 1996. "In Search of Owners: Privatization and Corporate Governance in Transition Economies," World Bank Research Observer, World Bank Group, vol. 11(2), pages 179-197, August.
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    Cited by:

    1. repec:ebl:ecbull:v:17:y:2006:i:5:p:1-9 is not listed on IDEAS
    2. Shuichi Ohori, 2006. "Optimal Environmental Tax and Level of Privatization in an International Duopoly," Journal of Regulatory Economics, Springer, vol. 29(2), pages 225-233, March.
    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. Luciano Fanti, 2015. "Environmental Standards and Cournot Duopoly: A Stability Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(4), pages 577-593, August.
    5. 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.
    6. Earnhart, Dietrich, 2000. "Liability for Past Environmental Contamination and Privatization," CEPR Discussion Papers 2571, C.E.P.R. Discussion Papers.
    7. Shuichi Ohori, 2006. "Environmental tax and trade liberalization in a mixed duopoly," KIER Working Papers 622, Kyoto University, Institute of Economic Research.
    8. Shuichi Ohori, 2006. "Trade liberalization, consumption externalities and the environment: a mixed duopoly approach," Economics Bulletin, AccessEcon, vol. 17(5), pages 1-9.
    9. 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.
    10. Dietrich Earnhart, 2000. "Liability for Past Environmental Contamination and Privatization," William Davidson Institute Working Papers Series 302, William Davidson Institute at the University of Michigan.


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