ABSTRACT
This chapter explains what we know about the size of the toxic liability problem and explores why these costs are so large. It analyses some criteria to be considered for reducing the toxic liability burden. The chapter provides some historical background on the laws that create toxic liabilities. It estimates of the size of the direct costs associated with some components of the toxic liability problem. The chapter explains the importance of the indirect costs, which are comprised of distorted incentives, perverse penalties on productivity, and the chilling effect on investment caused by large penalties assigned with little regard to fault or to effectiveness of costly remediation. It offers an explanation of how and why the liability system has gone wrong and also provides a set of criteria to help evaluate alternative institutions for determining legal liability. The relationship between economic growth and environmental protection is especially strong among industrialized nations.
