Strict Liability as a Deterrent in Toxic Waste Management: Empirical Evidence from Accident and Spill Data
Posted: 19 Oct 1999
This paper explores the issue of whether strict liability imposed on polluters has served to reduce uncontrolled releases of toxics into the environment. Because it imposes pollution damages upon the polluter, strict liability should create additional incentives for firms to handle hazardous substances more carefully, thus reducing the future likelihood of such uncontrolled releases.
Provisions making polluters liable for the damages caused by their polluting activities have been incorporated into a number of federal and state environmental laws passed over the last two decades, including CERCLA (1980) and the hazardous waste cleanup laws of many states. Despite the appeal of strict liability in hazardous waste cleanup, economic theory and anecdotal evidence point to the possibility that firms with limited assets may be sheltered from the economic incentives created by strict liability, and that firms may even select their asset level or corporate financial structure to minimize payment of damages in the event of an accident.
We wish to check whether these effects are pervasive, focusing specifically on firm liability for the cost of remediation at hazardous waste sites, as imposed by the "mini-Superfund" laws of many states. We use data on accidents and spills involving hazardous substances to establish whether their frequency has been systematically affected by the introduction of strict liability. The data come from a comprehensive database of events reported to the US EPA under their Emergency Response Notification System (ERNS).
Because ERNS begins in 1987, we are unable to establish whether the passage of the federal Superfund law has affected the occurrence of accidental releases. Instead, we examine whether the strict liability feature of state cleanup programs, which varies across states and over time, has had any additional influence on the number of accidental events, above and beyond that of the federal Superfund, and if such effects depend on firm size and other factors.
We estimate 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), spills appear to be more numerous where strict liability is imposed, even after we control for the extent and type of manufacturing. We present several alternative models and tests to shed light on this initial finding, looking for evidence about the effects of firm size. Separate regressions for the two liability regimes suggest that only under strict liability are small firms responsible for a disproportionate number of spills.
JEL Classification: Q28, Q38
Suggested Citation: Suggested Citation