Accidents Waiting to Happen: Liability Policy and Toxic Pollution Releases

Proponents of environmental policies based on liability assert that strict liability imposed on polluters induces firms to handle hazardous wastes properly. We run regressions relating unintended pollution releases to strict liability imposed on polluters, exploiting variation across states and over time in the liability provisions of state mini-Superfund laws. Strict liability reduces the frequency and severity of pollution releases, provided it is modeled endogenously with the latter. Its effects vary with firm size. Partially sheltered from liability, small firms may have specialized in riskier production processes, but their number has not necessarily grown in response to the states’ liability policy.