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Voluntary Cleanup Programs for Brownfield Sites: A Theoretical Analysis

Lyon, ThomasP., Yin, Haitao, Blackman, Allen, Wernstedt, Kris
Environmental and resource economics 2018 v.70 no.2 pp. 297-322
cleaning, risk reduction, theoretical models
Delays in cleaning up contaminated “brownfield” sites have led many states to adopt voluntary cleanup programs (VCPs), but the incentives they create remain poorly understood. We present the first theoretical model of VCPs, motivating it from a review of their institutional background, and the limited empirical literature on their effects. We show that tort liability alone leads to excessive development and insufficient risk mitigation, motivating the creation of mandatory cleanup programs (MCPs). We then show that MCPs with budget constraints lead to insufficient development and excessive risk mitigation, motivating the creation of VCPs. We analyze both the effect of VCPs on the extensive margin (whether a site is developed or not) and the intensive margin (mitigation level). VCPs do not increase mitigation efforts at all sites, but do increase the number of contaminated sites that are remediated and redeveloped. If designed properly they can induce highly-contaminated sites that are unknown to regulatory authorities to come forward to join the VCP.