The Mother of All Externalities: Superfund Sites Cleanup List

The US EPA’s Superfund site list is the mother of all economic externalities.

 

do-not-play-in-the-dirtExternalities, as defined elsewhere, is the shifting of costs from the buyer-seller pair to a third party.  Externalities are a form of market failure — when the pricing mechanism fails to capture the full and true cost of the product or service.

The U.S. Superfund Sites list, is the list sites requiring a toxic contamination cleanup. Typically, these sites are the where now defunct manufacturing businesses operated in the days when “dumping out the back of the factory” was the cheapest toxic chemical disposal method.  The sites are contaminated beyond safe use — and they often pose hazards to people downwind or downstream of them — until they are cleaned up (remediated).

Under the US law creating the Superfund, polluting companies are responsible for the cleanup costs.toxic-waste-barrels  If the companies are bankrupt or no longer exist then US taxpayers pay for the cleanup.  In the former case, that is shifting externality/costs from prior stockholders of the polluting company to current stockholders.  In the later case, it is shifting externalities/costs from the stockholders of the polluting company to today’s US taxpayers.

As of 2014, there were 1,322 sites on the list; 53 more proposed additions; and 375 sites removed from the list because they have been remediated and do not require on-going management (source).

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US EPA Superfund Sites

This National Geographic interactive site lets you find Superfund sites near you.

More broadly, the ToxMap site plots a broader list of contaminated toxic sites — it is largely a map of urban populations, railroads, and US highways but with some notable “off the beaten path” exceptions.

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ToxMap

Economic Externalities

Economic externalities explain how society works when the market fails.

Externalities, quoting Wikipedia, are:

In economics, an externality is the cost or benefit that affects a party who did not choose to incur that cost or benefit.[1] Economists often urge governments to adopt policies that “internalize” an externality, so that costs and benefits will affect mainly parties who choose to incur them.[2]

For example, manufacturing activities that cause air pollution impose health and clean-up costs on the whole society, whereas the neighbors of an individual who chooses to fire-proof his home may benefit from a reduced risk of a fire spreading to their own houses. If external costs exist, such as pollution, the producer may choose to produce more of the product than would be produced if the producer were required to pay all associated environmental costs. Because responsibility or consequence for self-directed action lies partly outside the self, an element of externalization is involved. If there are external benefits, such as in public safety, less of the good may be produced than would be the case if the producer were to receive payment for the external benefits to others. For the purpose of these statements, overall cost and benefit to society is defined as the sum of the imputed monetary value of benefits and costs to all parties involved.  Thus, unregulated markets in goods or services with significant externalities generate prices that do not reflect the full social cost or benefit of their transactions; such markets are therefore inefficient.

Externalities are pricing mechanism (market) failures. When the market fails, another entity must step in to correct the pricing distortions.  Typically, this other entity is government.