Strict liability should create additional incentives for firms to handle hazardous substances more carefully, thus reducing the future likelihood of uncontrolled releases of toxics. However, the size of these incentives may vary according to the size of a firm's assets, since asset size is the ultimate limit on a firm's liability. We are therefore interested to see whether imposing strict liability for the cost of remediation at hazardous waste sites has encouraged firms to handle toxic materials more carefully and has uniformly reduced the incidence of toxic spills, or whether the effect is dependent on firm size and other factors. To answer these questions, we exploit the variation in state hazardous waste site laws across states and over time. We control for the extent of manufacturing activity in the state, and include in the regression other program features that might alter firms' expected outlays in the event of an accident, and thus affect firms' incentives to take care.
Results vary with the chemical being analyzed.
For some chemicals, such as halogenated solvents, the presence of strict liability does not provide any additional explanatory power for the number of spills beyond what is achieved by the number of establishments and the sectoral composition of manufacturing. In particular, it appears that under strict liability small firms are responsible for a disproportionate number of spills. Since strict liability states tend to have more manufacturing firms, and more small manufacturing firms, these factors serve to increase the number of spills of these chemicals in strict liability states.