Is Pollution Value-Maximizing? The Dupont Case

55 Pages Posted: 2 Oct 2017 Last revised: 18 Sep 2021

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)

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Date Written: September 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 polluting was a rational decision: under reasonable probabilities of detection, polluting was ex-ante optimal from the company’s perspective, even if the cost of preventing pollution was lower than the cost of the health damages produced. We then examine why different mechanisms of control – legal liability, regulation, and reputation – all failed to deter a behavior that was inefficient from a social point of view. 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.

Suggested Citation

Shapira, Roy and Zingales, Luigi, Is Pollution Value-Maximizing? The Dupont Case (September 2017). NBER Working Paper No. w23866, Available at SSRN: https://ssrn.com/abstract=3046380

Roy Shapira (Contact Author)

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

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Interdiscplinary Center (IDC) ( email )

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Luigi Zingales

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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