Privatization and contaminated site remediation in Central and Eastern Europe: Do environmental liability policies matter?

This paper examines the effects on site remediation decisions after state-owned firms have been privatized of providing environmental information to potential investors and undertaking site remediation planning prior to privatization. The literature suggests that to minimize distortions created by uncertain environmental problems, governments should invest in environmental information for potential investors, inventory problems and develop plans for remediation. One of the believed benefits is a higher probability of site remediation, because with uncertainty resolved potential conflicts after privatization are less likely. Few countries in Central Europe, which has experienced both environmental problems and privatization on enormous scales, have adopted this advice. Using firm-level data, empirical analysis is presented, which suggests providing only information to investors is insufficient to spur remediation. Inventorying site contamination and planning remediation prior to privatization is a much more effective measure. Combining provision of information with remediation planning is found to be the most powerful policy package for encouraging remediation.