Economizing on the Sins of Our Past: Cleaning Up Our Hazardous Wastes
36 Pages Posted: 10 Jun 2010
Date Written: July 1988
Traditional economic analysis suggests that internalization of costs, that is, firms bearing all the social costs of their production, is necessary to achieve social efficiency. This approach has been used to bolster the legal argument that liability should be based on causation. My concern is that the principles of internalization and liability based on causation are playing an excessively dominating role in determining what the most equitable and efficient means are for managing and cleaning up environmental harms.
My purpose in this article is threefold. One is to explain some of these economic and legal concepts underlying those policies and the second is to demonstrate how the policies generated by these principles do not adequately or fairly address the problems we face with our risks of environmental harms.
My third objective is to propose an alternative basis and solution for coping with the risk of mass environmental harm which I believe is more efficient in its application as well as more equitable . In particular, I focus on the fact that despite the best of regulatory regimes and even the best intentions of corporations, accidents do happen, causing large scale harm even though the probability of its occurrence is extremely small. To hamstring that one unlucky company upon whom the accident has befallen with the full responsibility of remedying an accident can lead to unsatisfactory results. The company may be driven into bankruptcy, leaving its victims uncompensated, the environment still damaged and overall productivity diminished. Furthermore, since the probability of any one firm causing a mass harm is extremely small, every firm is discouraged from undertaking risk reduction research as the research costs exceed the expected value of the harm the firm is at risk of paying, i.e., the value of the harm diminished by the small probability of it occurring.
I suggest instead that an industry wide tax be imposed on all firms based on the likelihood of an industrial harm occurring and the level of damage it would cause. This would create a fund to ensure that the resources are available to compensate the victims and correct the damage when an accident does occur. The tax also could be adjusted to provide funds for risk reduction research that all firms in the industry would benefit from and employ.
Keywords: environment, hazardous waste, health risks, polluting effluents, RCRA, Resource Conservation and Recovery Act of 1976, waste disposal, PCB's, PBB's, Love Canal, CERCLA, Superfund Act of 1980, toxic wastes, internalization of costs, liability,
JEL Classification: K32, K13, K39, K49
Suggested Citation: Suggested Citation