A Model of Bargaining over Hazardous Waste Cleanup

We put forward a formal model of a bargaining problem in which two parties suspected of contaminating the environment are responsible for clean-up costs. If the parties do not negotiate an agreement on a cost allocation, one will be imposed by the government. This process is commonly used in environmental cleanups performed under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund). Passed by the US Congress in 1980 and administered by the Environmental Protection Agency (EPA), CERCLA provides the U.S. government with authority to manage releases (or threatened releases) of hazardous substances that may endanger public health or the environment. We conclude that potentially responsible parties will be induced to settle only in the face of specific allocations of clean-up and explicit threats. For example, at the Middlefield–Ellis–Whisman Superfund site in Mountain View, California, the responsibilities of the different parties for soil and groundwater contamination are understood by all, yet our negotiation model predicts that without the threat that additional costs will be imposed, agreement on the allocation of clean up costs will never be reached.