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Is Pollution Value-Maximizing? The DuPont Case

Roy Shapira and Luigi Zingales ()

No 23866, NBER Working Papers from National Bureau of Economic Research, Inc

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 polluting was a rational decision: under reasonable probabilities of detection, polluting was ex-ante optimal from the company’s perspective, even if the cost of preventing pollution was lower than the cost of the health damages produced. We then examine why different mechanisms of control – legal liability, regulation, and reputation – all failed to deter a behavior that was inefficient from a social point of view. 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.

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
Note: CF LE
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