Designing Public Policy toward Hazardous Wastes: The Role of Administrative Regulations and Legal Liability Rules

Abstract

The production of many valuable products and services generates, as by-products, hazardous and toxic substances that may cause serious injury. Those who are most likely to be injured by these substances are not the producers' customers but rather third parties, who are generally not in a contractual relationship with the facility generating or disposing of hazardous wastes and cannot, therefore, internalize the risk of harm. For example, if the dangerous chemicals that are generated in the process of dry cleaning are not disposed of properly, they may reach underground aquifers and travel long distances before rising into water supplies and causing great harm to persons and property, such as livestock. As a result, the possibility of harm from the generation and disposal of hazardous wastes is an externality requiring some form of public policy to induce the externality generator to internalize the costs involuntarily imposed on others. Naturally, the question arises whether ex ante or ex post regulation or some combination of the two is the most efficient method of accomplishing this internalization of costs. No coherent federal or state regulatory policies have emerged for dealing with the harms that hazardous and toxic wastes may cause. Some states, such as Illinois and Massachusetts, have banned landfilling, the most popular and economical method of disposing of hazardous wastes; Minnesota has greatly expanded the ability of those harmed by exposure to hazardous wastes to recover money damages from the generator and disposer in private law suits. At the federal level, there is no coherent explanation for the m6lange of administrative agency regulations, taxes, and penalties for failing to clean up abandoned waste disposal sites by which generators and disposers are regulated. In the domain of private law, it is not yet clear the extent to which private citizens harmed by hazardous wastes may seek recovery in private causes of action; nor is it clear what liability standard the courts will apply if those private causes of action are allowed.