Working Papers,
National Institute of Economic Research

Abstract: In this paper we evaluate how the environmental and health risks posed by a contaminated site affected the probability that it would receive funding for remedial action under a Swedish subsidization scheme, the Local Investment Programme (LIP). The LIP, effective between 1998 and 2002, had a twofold purpose: to step up the pace at which Sweden becomes an ecologically sustainable society and to reduce unemployment. Under the LIP, almost € 43 million (SEK 400 million) were granted to various municipal projects aimed at remediation of contaminated sites. In analyzing data on both subsidized and non-subsidized remediation projects, we unexpectedly find that the more hazardous a site, the less the probability of its receiving funding. Thus, contrary to the “worst things first” strategy officially adopted by the Swedish Parliament for remediation of contaminated sites, our results reveal a risk-avoiding allocation of government subsidies. Furthermore, the number of employment opportunities generated by remediation projects positively affects the probability of receiving a LIP subsidy. Although more faithful observance of the official strategy would have been desirable, the most highly contaminated sites at least received the most money. Based on our findings, we believe that extensive information about the hazards posed by contaminated sites is necessary to ensure better decisions on remediation funding and more efficient use of public resources in the future.

34 pages, April 1, 2006

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