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Liability for Past Environmental Contamination and Privatization

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  • 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.

Suggested Citation

  • Earnhart, Dietrich, 2000. "Liability for Past Environmental Contamination and Privatization," CEPR Discussion Papers 2571, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2571
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    References listed on IDEAS

    as
    1. 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.
    2. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    3. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
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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. Earnhart, Dietrich & Lizal, Lubomir, 2002. "Effects of Ownership and Financial Status on Corporate Environmental Performance," CEPR Discussion Papers 3557, C.E.P.R. Discussion Papers.
    3. 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.

    More about this item

    Keywords

    Environmental Contamination; Liability; Privatization; Risk;

    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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