Is Pollution Value-Maximizing? The DuPont Case

Luigi Zingales and Roy Shapira

No 12323, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: DuPont, one of the most respectable U.S. companies, caused environmental damage that ended up costing the company around a billion dollars. By using internal company documents disclosed in trials we rule out the possibilities that this bad outcome was due to ignorance, an unexpected realization, or a problem of bad governance. The documents rather suggest that the harmful pollution was a rational decision: under reasonable probabilities of detection, polluting was ex-ante optimal from the company’s perspective, albeit a very harmful decision from a societal perspective. We then examine why different mechanisms of control – legal liability, regulation, and reputation – all failed to deter socially harmful behavior. One common reason for the failures of deterrence mechanisms is that the company controls most of the information and its release. We then sketch potential ways to mitigate this problem.

Keywords: Pollution; Firm objectives; Environmental regulation (search for similar items in EconPapers)
JEL-codes: K32 L21 Q52 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-env, nep-law and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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