Grantee Research Project Results
2005 Progress Report: Environmental Liability, Corrective Expenditures, and Redevelopment of Industrial Sites
EPA Grant Number: R831777Title: 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 Period Covered by this Report: 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
Objective:
The aim of the project is to explore the effects of environmental liability and differences in environmental liability rules on incentives for redevelopment of industrial land and on settlements and private corrective expenditures. This project also will explore the effectiveness of incentive-based policies that provide relief from environmental liability.
Progress Summary:
Environmental liability–in particular, the threat of being compelled to pay for cleanup of contamination–is perceived as a significant barrier to redevelopment of old industrial land. The respondents to a survey of cities by the U.S. Conference of Mayors (USCM) cited liability as second only to lack of cleanup funding as the major obstacle to redevelopment. As previous theoretical studies have argued, however, real estate price responses could absorb the effect of liability for prospective developers, so liability might not impede redevelopment. Existing empirical literature has found price reductions in response to liability, but has not looked for an effect on redevelopment rates. The project has explored the question of whether liability may impede redevelopment from two perspectives.
First, empirical work described in a working paper (“Environmental Liability and the Redevelopment of Industrial Land”) tests the effects of liability by looking at urban real estate markets. This paper studies variations in state liability rules: (1) strict liability, which requires parties to pay for cleanup regardless of whether they were negligent in their handling of contaminants; and (2) joint and several liability, which allows the government to sue any responsible party for all corrective costs, regardless of its contribution to the harm. These liability rules affect the level and distribution of expected private cleanup costs.
The empirical analysis explores the effects of this variation on land prices and vacancy rates in a panel of about 100 cities across the United States from 1989 through 2000. Data on real estate markets derives from annual reports by the Society of Industrial and Office Realtors (SIOR) for urban and suburban areas. We merged these data with information about liability rules, other city-level conditions, such as unemployment and highway density, and descriptors of state environmental policies. The estimated equations also allow city-level unobserved heterogeneity. Preliminary results suggest that joint and several liability reduces land prices and vacancy rates in central cities, but not in the suburbs. Neither a price nor quantity effect is estimated from strict liability.
Second, a working paper (“The Effects of Joint and Several Liability under Superfund on Brownfields,” with Howard F. Chang of University of Pennsylvania Law School) analyzes the incentives created by joint and several liability. We find that joint and several liability can create inefficiencies in the sale of potentially contaminated property for a number of reasons. The analysis has several policy implications. First, it gives some support to federal and state policies that restrict reliance on joint and several liability. Second, our analysis can help to identify circumstances in which relief from joint and several liability might be especially beneficial. For example, the analysis finds the distortions to be most severe at sites with small numbers of liable parties.
In addition to the analysis in the two working papers, work was conducted to set up another panel data set. The panel consists of cities and towns that reported brownfields acreage in response to a series of surveys conducted by the USCM. Respondents to the USCM survey range from big cities to small towns and do not use any Census identifying codes, so matching the USCM data to data from other sources has required a fair amount of manual effort. A panel data set linking data for cities over time and matching to Census county-level data is now complete. The data will be used for analyses of the effects of liability rules described above and for other analyses described below. These data provide a more restricted focus on brownfields than the data on industrial real estate markets analyzed thus far; as a consequence, they can both potentially verify the earlier results and focus the analysis on sites with a high likelihood of contamination.
Future Activities:
In addition to revising current working papers and preparing them for publication, four additional lines of inquiry are planned. First, the USCM data set described above will be exploited to analyze the effects of liability rules in an analysis to complement the analysis of the general real estate market data described above.
Second, the project will explore the effects of policies that provide liability relief. This undertaking will require an economic analysis of these programs to consider the various incentives they create. It will also involve empirical analysis, using the data set on land prices, vacancy rates, and estimated brownfields acreage already assembled. A variety of sources characterize these programs, including the Environmental Law Institute surveys that have been used to describe liability regimes and state summaries by the Northeast-Midwest Institute.
Third, the project will consider the effect of liability rules on private expenditures at contaminated sites. The plan is to use two sources of data. First, the project will examine whether state-level cleanup costs (from the Pollution Abatement Costs and Expenditures Survey) vary with liability regimes. Second, I plan to use Federal Register notices of Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) settlements to create a data set of settlement amounts by law suit. This process will require a research assistant to read and manually enter values from the notices. Once these data are compiled, I will use several measures suggested by theory, such as the correlation in outcomes among defendants, to explore the effects of joint and several liability. The methodology will be similar to that developed in Chang and Sigman (2001) to look at the timing of settlement under joint and several liability.
Finally, I plan to use a sample selection model and the USCM data to create an estimate of brownfield acreage in the United States. The figures that are frequently cited (half a million to a million acres) are from a study that extrapolates from the decline in manufacturing employment and requires many strong assumptions. The USCM data provide reported brownfield acreages, but in a nonrandom selection of cities and towns. To use these data to create national estimates, we will need to estimate a model of selection into the USCM survey, using data on responding and non-responding locales. With this model, it will be possible to extrapolate the USCM figures to the national level and also provide breakdowns by region and city size. Such figures may be useful, for example, in estimating expenditure needs for state and federal brownfields programs.
Journal Articles:
No journal articles submitted with this report: View all 6 publications for this projectSupplemental Keywords:
public policy,, RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, INTERNATIONAL COOPERATION, Waste, Remediation, Economics, Brownfields, Environmental Policy, Ecology and Ecosystems, Urban and Regional Planning, Market mechanisms, Social Science, brownfield sites, effects of policy instruments, financial mechanisms, market incentives, market-based mechanisms, urban regeneration, impact of federal policy instruments, policy incentives, policy making, Brownfield's developer liability, government intervention, environmental remediation, Brownfield site, community based, socioeconomics, incentive based policies, environmental economicsRelevant Websites:
http://econweb.rutgers.edu/sigman Exit
Progress and Final Reports:
Original AbstractThe perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.