Posted by Roy Shapira, IDC Herzilya; and Luigi Zingales, University of Chicago, on
Tuesday, October 17, 2017
Roy Shapira is Associate Professor at IDC Herzliya Radzyner Law School; Luigi Zingales is Robert C. McCormack Distinguished Service Professor at University of Chicago Booth School of Business. This post is based on their recent paper.
Why do firms pollute even when polluting is socially inefficient (i.e., the harm caused greatly exceeds the cost of curbing the toxic emissions)? Is this undesirable outcome the result of corporate myopia, bad internal governance, or weak external constraints? In our new working paper, we study DuPont’s emissions of a toxic chemical dubbed C8 to shed some light on these questions. C8 was used in DuPont’s West Virginia plant in the process of manufacturing Teflon®. In February 2017, DuPont settled a C8-related litigation for $670M. Thus, it may seem that the system works and legal liability should deter firms from polluting. However, by using evidence discovered during the C8-litigation we show that it was perfectly rational for DuPont to pollute ex ante, in spite of the costs it ended up paying ex post, and the costs it imposed on society.
Two unique aspects of the C8 pollution case make it worth studying. First, the firm involved, DuPont, is not a fly-by-night company. It is one of the most respected American companies (as Chief Justice Strine details in a paper profiled on this blog), consistently scoring good marks on corporate governance indices, and a known leader in toxicological and occupational safety research. Understanding how such a company continues to pollute for several decades can improve our understanding of what works and what does not work in deterring pollution. Second, the litigation against DuPont unearthed a trove of internal company documents that allow us to reconstruct when key decisions were made and what were the costs and benefits of such decisions.
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