Second-Best Prioritization of Environmental Cleanups

Jacob LaRiviere (), Matthew McMahon and Justin Roush
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Jacob LaRiviere: Office of the Chief Economist, Microsoft

Environmental & Resource Economics, 2019, vol. 72, issue 4, No 14, 1225-1249

Abstract: Abstract Yearly allocations to EPA Superfund cleanups are relatively fixed, but the EPA has significant leeway over which sites to clean within a given year. However, the EPA currently does not consider any economic criteria when ordering sites for remediation. Given the local economic benefits to cleaning, the EPA may be able to increase overall social welfare by considering certain economic criteria. We build a theoretical model that incorporates both the short-run and long-run cleanup benefits and identifies the site and location characteristics that impact welfare. We then use calibrated Monte Carlo simulations to compare 6 feasible cleanup policies and 1 infeasible best-case policy to the status quo policy. We find that the best of the feasible policies can on average improve welfare by 1.88% of the status quo policy, though the administrative costs are likely non-trivial. A similarly beneficial alternative may be to use a set of heuristics regarding site characteristics to order cleanups. In order of importance, the ranking criteria are: site cleanup cost (cheapest first), long-term economic damages from waste, areas currently in a recession, and local discount rates. Ex ante local economic stability has no significant effect. This set of heuristics sees a slightly smaller mean welfare increase (1.85%). Notably, since 3 of the 4 criteria are easily observable, this increase is nearly costless.

Keywords: Environmental policy; Superfund; Government spending; Countercyclical policy (search for similar items in EconPapers)
JEL-codes: H4 Q52 Q58 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10640-018-0245-9

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