NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Cost Recovery in Superfund Cases

The share of [Superfund] cleanup costs recovered by the government increases with the number of ...potentially responsible parties.

Economic theory suggests that under the joint-and-several liability imposed by the federal Superfund statute, the government will recover more of its costs of cleaning up contaminated sites than it would under non-joint liability. Further, the amount recovered should increase with the number of defendants.

In An Empirical Analysis of Cost Recovery in Superfund Cases: Implications for Brownfields and Joint and Several Liability (NBER Working Paper No. 16209), authors Howard Chang and Hilary Sigman test these predictions using data from the EPA’s Integrated Compliance Information System (ICIS), which contains records of civil, judicial, and administrative federal EPA enforcement cases filed through April 2009. Consistent with the theory, they find that joint-and-several liability increases the share of cleanup costs recovered by the government and that this share increases with the number of defendants and with the number of potentially responsible parties (PRPs).

The increases in cost recovery that occur with more defendants may be the result of joint-and-several liability, which acts as an implicit tax on transactions that add another PRP to the site. This implicit tax in turn may discourage sales of sites with known or suspected contamination (“brownfields”), thereby inhibiting the redevelopment of brownfields. The estimated effect on recovered cleanup costs suggests a substantial implicit tax on sales of brownfields.

There have been efforts -- including actions by the EPA, Congress, and the states -- to protect brownfields purchasers from liability for cleanup costs. By reducing or eliminating the probability that the purchaser would be liable, such policies may avoid or mitigate the effects of the threat of environmental liability on the incentives to buy contaminated property.

-- Lester Picker

The Digest is not copyrighted and may be reproduced freely with appropriate attribution of source.
 
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