Is Pollution Value-Maximizing? The DuPont Case

54 Pages Posted: 18 Sep 2017 Last revised: 19 Sep 2017

See all articles by Roy Shapira

Roy Shapira

Stigler Center, University of Chicago Booth School of Business; Interdiscplinary Center (IDC)

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: September 1, 2017

Abstract

DuPont, one of the most respectable U.S. companies, caused environmental damage that ended up costing the company around a billion dollars. By using internal company documents disclosed in trials we rule out the possibilities that this bad outcome was due to ignorance, an unexpected realization, or a problem of bad governance. The documents rather suggest that the harmful pollution was a rational decision: under reasonable probabilities of detection, polluting was ex-ante optimal from the company’s perspective, albeit a very harmful decision from a societal perspective. We then examine why different mechanisms of control – legal liability, regulation, and reputation – all failed to deter socially harmful behavior. One common reason for the failures of deterrence mechanisms is that the company controls most of the information and its release. We then sketch potential ways to mitigate this problem.

Keywords: Pollution, Firm Objectives, Environmental Regulation

JEL Classification: K32, Q52, L21

Suggested Citation

Shapira, Roy and Zingales, Luigi, Is Pollution Value-Maximizing? The DuPont Case (September 1, 2017). Available at SSRN: https://ssrn.com/abstract=3037091 or http://dx.doi.org/10.2139/ssrn.3037091

Roy Shapira

Stigler Center, University of Chicago Booth School of Business ( email )

Walker Hall
Chicago, IL 60637
United States

Interdiscplinary Center (IDC) ( email )

P.O. Box 167
Herzliya, 46150
Israel
972-9-9602410 (Phone)
972-9-9527996 (Fax)

Luigi Zingales (Contact Author)

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
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773-702-3196 (Phone)
773-834-2081 (Fax)

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

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