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

  • Austin, David
  • Alberini, Anna

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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File URL: http://www.rff.org/RFF/documents/RFF-DP-98-16.pdf
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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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  1. 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.
  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. 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.
  5. 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.
  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. 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.
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