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Financial Responsibility for Environmental Obligations: Are Bonding and Assurance Rules Fulfilling Their Promise?


  • Boyd, James

    () (Resources for the Future)


Financal assurance rules, also known as financial responsibility or bonding requirements, foster cost internalization by requiring potential polluters to demonstrate the financial resources necessary to compensate for environmental damage that may arise in the future. Accordingly, assurance is an important complement to liability rules, restoration obligations, and other regulatory compliance requirements. The paper reviews the need for assurance, given the prevalence of abandoned environmental obligations, and assesses the implementation of assurance rules in the United States. From the standpoint of both legal effectiveness and economic efficiency, assurance rules can be improved. On the whole, however, cost recovery, deterrence, and enforcement are significantly improved by the presence of existing assurance regulations.

Suggested Citation

  • Boyd, James, 2001. "Financial Responsibility for Environmental Obligations: Are Bonding and Assurance Rules Fulfilling Their Promise?," Discussion Papers dp-01-42, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-01-42

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    References listed on IDEAS

    1. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
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    Cited by:

    1. BOYER, Marcel & PORRINI, Donatella, 2010. "Optimal Liability Sharing and Court Errors : An Exploratory Analysis," Cahiers de recherche 05-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    2. Yolande Hiriart & David Martimort & Jérôme Pouyet, 2008. "The Regulator and the Judge : The Optimal Mix in The Control of Environmental Risk," Revue d'économie politique, Dalloz, vol. 118(6), pages 941-967.
    3. Marcel Boyer & Donatella Porrini, 2008. "The Efficient Liability Sharing Factor For Environmental Disasters: Lessons For Optimal Insurance Regulation," CIRANO Working Papers 2008s-03, CIRANO.
    4. Muehlenbachs, Lucija, 2012. "Testing for Avoidance of Environmental Obligations," Discussion Papers dp-12-12, Resources For the Future.
    5. repec:eee:jrpoli:v:52:y:2017:i:c:p:29-38 is not listed on IDEAS
    6. Productivity Commission, 2008. "Chemicals and Plastics Regulation," Research Reports, Productivity Commission, Government of Australia, number 27.
    7. Peck, Philip & Sinding, Knud, 2009. "Financial assurance and mine closure: Stakeholder expectations and effects on operating decisions," Resources Policy, Elsevier, vol. 34(4), pages 227-233, December.
    8. Liu Deming, 2012. "Proposing the Bonding Requirements for Investment in Africa: A Tripartite Solution for the Environmental Protection," The Law and Development Review, De Gruyter, vol. 5(2), pages 128-154, December.

    More about this item


    financial assurance; financial responsibility; bonding; environmental insurance;

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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