Market Response to the Government Regulation of Toxic Substances

The Case of Chlorinated Solvents

by Thomas W. Chesnutt

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Under the Toxic Substances Control Act, the Environmental Protection Agency must oversee a wide range of chemicals that may harm humans or the environment. If each potentially toxic chemical were used completely independently of other potentially toxic chemicals, regulatory analysis of any chemical could ignore the effects of regulation upon other chemicals. Since users of a chemical can substitute other chemicals, regulatory analysis must account for the second-order effects of regulation on other chemicals. This study argues that implicit risk tradeoffs among chemicals occur repeatedly as the response of economic markets to government regulation. It recommends, therefore, that such tradeoffs be formally incorporated into the analysis of regulatory alternatives.

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