Is Pollution Value-Maximizing? The DuPont Case

Can companies systematically profit by externalizing major costs on society? The answer to this question depends on the effectiveness of three deterrence mechanisms, namely, litigation, regulation, and reputation. This Article examines the conditions under which all three deterrence mechanisms fail simultaneously, allowing companies to do well financially by doing harm. Using DuPont’s decades-long emissions of the toxic chemical PFOA as a case study, we diagnose systemic weaknesses in corporate deterrence and identify targeted policy solutions. 

For six decades, DuPont emitted PFOA, causing irreparable harm to human health and the environment. To examine how such catastrophic pollution can come from such a respected company, we review thousands of internal company documents that were unearthed during litigation. The documents allow us to reconstruct the costs and benefits of pollution as DuPont executives viewed them in real time. We also conduct content analysis of media coverage of the PFOA debacle to examine whether these DuPont executives suffered hits to their labor-market reputation following the debacle and interview key players involved in the debacle. We then merge the insights from DuPont’s case with recent studies of corporate deterrence, to make the following three contributions. 

First, we demonstrate through financial analysis that pollution can be profitmaximizing for chemical companies, even when it is very harmful to society. Second, we explain why all deterrence mechanisms failed. A large time lag between the executive decision to pollute and the payment of sanctions for the pollution diluted the deterrent effect of tort litigation. Weak statutory design and the revolving doors between regulators and chemical companies rendered regulation ineffective. And the ability of chemical companies to control the information environment and manufacture doubt about the effects of their chemicals watered down the effectiveness of reputational discipline. Finally, we propose concrete policy instruments to improve deterrence, such as introducing an environmental qui tam mechanism, recalibrating the oversight duty doctrine, and redesigning prejudgment interest rules.