For over 30 years, my family has been fishing the Shenandoah River System. One of the headwaters, the South River, which flows out of the Shenandoah National Park and through Waynesboro, has been subject of the largest environmental damage settlement in Virginia history. In the 1930's and 40's, a DuPont facility manufacturing rayon released toxic mercury into the South River which is a tribute The devastating environmental effects of toxic pollution are well-known. Although experts predicted mercury levels to decrease, the soil on the banks of the river temporarily absorb mercury, but frequent high water levels cause the mercury in the soak to be re-released into the water. Even when I fish on the South Fork of the Shenandoah River, there are still signs to limit consumption of smallmouth bass due to elevated mercury levels.
This is an example of a negative production externality: the production of rayon reduces the well-being of othersThe social marginal cost was higher than the social marginal benefit. In our text, Gruber defines an externality as when "the actions of one party makes another party worse or better off, yet the 1st party neither bears the cost nor benefit". The Coasian solution to this problem would have been for fisherman and local businesses to charge DuPont $x/unit of pollution. This charge would increase the private marginal cost, which would coincide with the social marginal cost, thereby decreasing the quantity of pollution. It is possible that a Coasian private remedy could have worked back then, but now, 70 to 80 years later, the solution is retroactive regulation and corrective payments. In 2016, the DOJ, Department of the Interior, and Virginia state government announced a $50 million settlement with DuPont to help finance "restore the precious natural resources of the South Fork watershed".
1 comment:
Thanks for this post, Jacob! This made me think about an added complexity of externalities that we did not discuss in class: the issue of time and permanency. In the basic examples, externalities are portrayed as immediately preventable with no lingering effects: the confectioner can immediately stop production if he wishes, and the externality of noise immediately stops. I think your experience demonstrates the reality that externalities are often extended over time and have semi-permanent effects. Even if the culpable action is stopped (e.g. rayon production) the externality continues (e.g. the river will continue to deteriorate). The implication of this, I believe, is that private Coasian solutions will often hinge upon large overhead payments for restoration projects (e.g. restoring the river) rather than the per-unit payments we see in class.
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