The Efficiency of Sharing Liability for Hazardous Waste : Effects of Uncertainty Over Damages

The environmental problems of the United States and the European nations have generated a dynamic body of literature in legal and economic research. One of the most significant branches of this research has been the analysis of strict liability versus ex post negligence standards, and the sharing of damages under each regime, when the level of prospective environmental damages can be estimated with certainty. These studies are crucial to policymakers in many countries, whether they are Americans considering the reenactment of the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and Resource Conservation and Recovery Act (RCRA) statutes, Western Europeans facing rapidly evolving environmental liability regimes, or Eastern Europeans searching for a solution to their countries' environmental problems. Yet, existing research has ignored the fact that tremendous uncertainty exists in calculating future environmental clean-up costs, and that this uncertainty might affect the choice of the appropriate liability regime. In this paper, we develop an industry equilibrium analysis for treatment storage and disposal facilities (TSDFs, more commonly referred to as "dumps") to examine further the optimal choice of liability regime, particularly in the case where environmental damage costs are unknown