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Liability for Past Environmental Contamination and Privatization

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  • Earnhart, Dietrich

Abstract

This paper examines the role of liability for past environmental contamination in the privatization processes of Central and Eastern Europe. The theoretical section establishes a link between a risk-averse investor’s amount of information regarding the extent of past environmental contamination (and its cleanup costs) and the investor’s willingness to pay for a particular enterprise, i.e., bid. As the investor obtains a more precise estimate of the uncertain cleanup costs, the investor faces less risk; therefore, the investor’s risk premium falls and the investor’s bid rises. This link generates four hypotheses regarding a privatization agency’s responses to the investor’s knowledge of cleanup costs. The empirical section of this paper proposes to test these hypotheses with forthcoming analysis using data from the Czech Republic.

Suggested Citation

  • Earnhart, Dietrich, 2000. "Liability for Past Environmental Contamination and Privatization," CEPR Discussion Papers 2571, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2571
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    References listed on IDEAS

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    6. Randall Bluffstone & Theodore Panayotou, 2000. "Environmental Liability and Privatization in Central and Eastern Europe: Toward an Optimal Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(4), pages 335-352, December.
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    Citations

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    Cited by:

    1. Anke D. Wurzbacher, 2004. "Dynamic Ecological Constraints to Economic Growth," Department of Economics - Working Papers Series 909, The University of Melbourne.
    2. Earnhart, Dietrich & Lízal, Lubomír, 2002. "Effects of Ownership and Financial Status on Corporate Environmental Performance," CEPR Discussion Papers 3557, C.E.P.R. Discussion Papers.
    3. Satoru Komatsu & Andrey Kalugin & Shinji Kaneko, 2012. "Allocating Costs of Environmental Management among Generations: A Case of Environmental Liabilities in Transition Economies," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 19(2), pages 225-243, November.
    4. Leroux, Anke D. & Creedy, John, 2007. "Optimal land conversion and growth with uncertain biodiversity costs," Ecological Economics, Elsevier, vol. 61(2-3), pages 542-549, March.
    5. repec:ebl:ecbull:v:17:y:2006:i:5:p:1-9 is not listed on IDEAS
    6. Earnhart, Dietrich & Lizal, Lubomir, 2006. "Effects of ownership and financial performance on corporate environmental performance," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 111-129, March.
    7. Shuichi Ohori, 2006. "Trade liberalization, consumption externalities and the environment: a mixed duopoly approach," Economics Bulletin, AccessEcon, vol. 17(5), pages 1-9.
    8. Bluffstone, Randall, 2007. "Privatization and contaminated site remediation in Central and Eastern Europe: Do environmental liability policies matter?," Ecological Economics, Elsevier, vol. 63(1), pages 31-41, June.

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    More about this item

    Keywords

    Liability; Risk; Privatization; environmental contamination;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

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