‘Green money’ in the bank: firm responses to environmental financial responsibility rules

Abstract

Financial responsibility rules are an increasingly common form of environmental regulation. Currently, the operators of landfills, underground petroleum storage tanks, offshore rigs, and oil tankers must demonstrate the existence of adequate levels of capital as a precondition to the legal operation of their businesses. Environmental financial responsibility ensures that firms possess the resources to compensate society for pollution costs created in the course of business operations. In addition to providing a source of funds for victim compensation and pollution remediation, financial responsibility is thought to motivate better decision-making, particularly regarding the management of long-term risks. This article describes firms' strategic responses to financial responsibility rules and their implications for the promise of financial responsibility as a complement to conventional environmental regulation. © 1997 John Wiley & Sons, Ltd.