Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience

By Jody Freeman; Charles D. Kolstad | Go to book overview

15
A Proposal to Use Transactions to
Leverage Environmental Disclosure
and Compliance

Michael B. Gerrard

The transfer of property is the occasion—often the only occasion—for a searching examination of the debts and obligations that adhere to the property and of the validity of the title. In a handful of states it is also the time for a study of contamination. When the property is very valuable, as in a large manufacturing facility, the usual transaction costs may be so high that additional studies can be funded without adding a large percentage to the costs. This is especially so when what is being transferred is not just a single facility but a company or a business unit that owns many facilities and other assets.

For these reasons, the transfer of property provides the opportunity for government to require, or at least offer incentives for, a close look at a facility's compliance with a range of environmental laws. The experience to date with the incentives for site investigation provided by the liability scheme for hazardous substances suggests that this mechanism could become a powerful tool for identifying noncompliance with environmental laws and, in many cases, correcting it.

This would be a market-based instrument in the sense that it takes the characteristics of the property market into account in adjusting incentives. Unlike a command-and-control mechanism, which would impose a set of more or less fixed mandates, requiring environmental studies when property is transferred would induce those selling or acquiring property to move toward compliance because—and to the extent that—it would become in their own economic self-interest to do so.

The laws that create liability on the transfer of property have a pervasive impact on the daily practice of environmental law and perhaps inadvertently create greater economic incentives for reducing hazardous

-420-

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