Superfund and Transaction Costs

Congress enacted the Superfund program in 1980 to clean up the nation's worst inactive hazardous-waste sites. Superfund uses a liability-based approach intended to help government tap private-sector resources to finance and conduct cleanups. Based on an examination of the activities and expenditures of two sets of private parties — large industrial firms (the potentially responsible parties, or PRPs) and insurance companies — this report studies empirically the effects of Superfund's liability-based approach on the cost of waste-site cleanup. The analysis focuses on insurer and PRP expenditures and the breakdown of those expenditures into cleanup and transaction costs (incurred in resolving disputes about who is responsible for cleanup). The analysis includes cleanups instigated by state programs and those undertaken privately, as well as those that are in the federal Superfund program. The research suggests that there is considerable variation in transaction-cost shares across sites. More information on the characteristics of the nation's inactive hazardous-waste sites would provide a better prediction of what transaction costs will ultimately be. However, it may only be as time passes and more sites move into the later stages of the cleanup process that we will be able to develop an accurate picture of the transaction costs generated by the liability-based approach of Superfund and similar state laws.