Discussion Paper Details

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Title: Is Pollution Value-Maximizing? The DuPont Case

Author(s): Roy Shapira and Luigi Zingales

Publication Date: September 2017

Keyword(s): Environmental Regulation, Firm Objectives and pollution

Programme Area(s): Financial Economics

Abstract: DuPont, one of the most respectable U.S. companies, caused environmental damage that ended up costing the company around a billion dollars. By using internal company documents disclosed in trials we rule out the possibilities that this bad outcome was due to ignorance, an unexpected realization, or a problem of bad governance. The documents rather suggest that the harmful pollution was a rational decision: under reasonable probabilities of detection, polluting was ex-ante optimal from the company's perspective, albeit a very harmful decision from a societal perspective. We then examine why different mechanisms of control - legal liability, regulation, and reputation - all failed to deter socially harmful behavior. One common reason for the failures of deterrence mechanisms is that the company controls most of the information and its release. We then sketch potential ways to mitigate this problem.

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Bibliographic Reference

Shapira, R and Zingales, L. 2017. 'Is Pollution Value-Maximizing? The DuPont Case'. London, Centre for Economic Policy Research.