ABSTRACT
Existing soil and groundwater contamination are likely to affect future industrial development and investment in Central and Eastern Europe, because large-scale pollution cleanup costs are potentially tied to industrial property transactions in that area of the world and the division of liability for these costs is uncertain. Determining how pollution cleanup costs should be allocated between governments and current or future property owners will not be easy. Retroactive liability is unlikely to be a desirable or a feasible means of assigning such costs for several reasons—one reason being its costly impact on the large number of thinly capitalized firms in the region. Publicly financed liability funds, by widely distributing cleanup costs, create a more desirable climate for foreign and domestic investment than does a U.S.-style system of retroactive liability and will lead to better setting of priorities for cleanup efforts. However, pooled fund programs should be operated on a short-term basis only, as they may reduce private incentives to invest in pollution reduction.
