Liability for Past Environmental Contamination and Privatization

Dietrich Earnhart

No 2571, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper examines the role of liability for past environmental contamination in the privatization processes of Central and Eastern Europe. The theoretical section establishes a link between a risk-averse investor’s amount of information regarding the extent of past environmental contamination (and its cleanup costs) and the investor’s willingness to pay for a particular enterprise, i.e., bid. As the investor obtains a more precise estimate of the uncertain cleanup costs, the investor faces less risk; therefore, the investor’s risk premium falls and the investor’s bid rises. This link generates four hypotheses regarding a privatization agency’s responses to the investor’s knowledge of cleanup costs. The empirical section of this paper proposes to test these hypotheses with forthcoming analysis using data from the Czech Republic.

Keywords: Liability; Risk; Privatization; environmental contamination (search for similar items in EconPapers)
JEL-codes: D80 K32 (search for similar items in EconPapers)
Date: 2000-09
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Liability for Past Environmental Contamination and Privatization (2004)
Working Paper: Liability for Past Environmental Contamination and Privatization (2000)
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