The Wall Street Journal reports on the clean-up costs of the Vietnam-era defoliant Agent Orange, these many decades later. It’s not a pretty story.
The factory that produced the poison was in New Jersey, and apparently, a lot of the leaked chemicals were washed down the drain and into the Passaic River, where they sank to the bottom as toxic sludge.
The original company and its factory were bought and eventually owned by an Argentine company that sold off the assets (presumably distributing gains to the shareholders) and then … declared bankruptcy. Who is left to clean up the nearly $12 billion environmental liability?
The Journal reports that:
“Other interested parties, including another company that shares the liability, are up in arms over the maneuver. They say the subsidiary was a puppet company emptied of value and left to take the fall for the Passaic River. Creditors sued YPF in June, alleging it improperly bled Maxus dry, intending to use its subsidiary’s bankruptcy filing to ditch its cleanup obligations.”
This is an excellent reason why Ronald Coase resisted the effort to use his “Coase Theorem” to argue against government regulations.
The Coase Theorem does not apply in many cases. Only if property rights are clearly owned, and only if the transaction costs for enforcing those rights are minimal, will the private market have an incentive to solve environmental problems.
In this case, a public waterway does not have clear property rights, and the legal costs for enforcing responsible parties to pay for their messes are astronomical. The ploy of companies to defile the environment and then declare bankruptcy has unfortunately been common overseas in gold mining and other areas. The EPA and courts in the U.S. have generally resisted the bankruptcy gambit, but the legal costs and the time given to litigation are huge (while the pollution spreads).
Government regulations on effluents, which might include monitoring and requiring escrow accounts of clean-up funds, would seem a high price to pay, but perhaps are far cheaper than what ultimately may be required when the true costs of polluting are dumped in the public’s lap.
The bottom line: Don’t ask the market to solve environmental problems when the companies involved do not have an incentive to solve them.
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