PROPERTY TRANSFERS AND ENVIRONMENTAL-POLLUTION - INCENTIVE EFFECTS OF ALTERNATIVE POLICIES

This paper considers how transferring some or all future responsibility for cleanup of a contaminated site affects the current owner's incentives to reduce contamination, given that he anticipates selling his property in the future. The results depend on the probabilities that the parties will be judgment-proof, the distribution of surplus, and whether there is joint and several liability. Contrary to popular belief, we show that transferring liability can actually increase the seller's incentive to invest in pollution abatement. Furthermore, abatement incentives are at least as great and generally greater with joint and several liability than without it.