Environmental Liability, Corrective Expenditures, and Redevelopment of Industrial SitesEPA Grant Number: R831777
Title: Environmental Liability, Corrective Expenditures, and Redevelopment of Industrial Sites
Investigators: Sigman, Hilary
Institution: National Bureau of Economic Research
EPA Project Officer: Hahn, Intaek
Project Period: January 1, 2005 through December 31, 2006
Project Amount: $149,237
RFA: Market Mechanisms and Incentives for Environmental Management (2003) RFA Text | Recipients Lists
Research Category: Environmental Justice
Despite widespread belief that environmental liability deters redevelopment of old industrial, economic theory raises questions about the effect of liability on redevelopment rates (as opposed to land prices). This project studies this effect empirically, using data on variation in expected liability across cities and over time in the United States.
The research takes two principal approaches to identifying variation in expected liability across cities. One approach is to use cleanup expenditures reported by manufacturing plants. This measure captures variations in expected liability from many sources and allows a statistical test of the extent of capitalization of liability in land prices.
Another approach focuses on policy sources of variation in liability. The liability rules that states impose for past contamination vary across states and over time along three dimensions — whether they entail retroactive liability, strict liability, joint and several liability — all of which have important implications for expected liability. In addition, many states have recently implemented incentive-based brownfields policies to combat the perceived liability deterrent. The project will estimate the effects of liability rules and brownfields programs on land prices and redevelopment. In addition, it will look at the intermediate question of the effect of the liability rules on cleanup expenditures.
The project will employ panel data approaches to address unobserved heterogeneity that might determine policy adoption, cleanup spending, and redevelopment. It uses data on industrial land prices, vacant acreage, and acreage under development in central cities and suburbs for about 200 locations around the country since the 1980s, as well as more recent data on redevelopment of perceived brownfields. The real estate data will be merged to data on liability rules, brownfields policies, and cleanup spending and other factors important to real estate demand, such as employment, highway density, and property taxes.
The project will allow recommendations to governments about effective incentives for brownfield redevelopment, based on recent U.S. experience. It will also help policy-makers assess alternative liability rules in terms of the amount of cleanup spending they elicit and the deterrent they create for redevelopment.