Matthew W. White

Risk-Based Pricing and Risk-Reducing Effort: Does the Private Insurance Market Reduce Environmental Accidents?

This paper examines whether risk-based pricing promotes risk-reducing effort. Risk-based pricing is common in private insurance markets but rare in government assurance programs. We analyze accidental underground fuel tank leaks—a source of environmental damage to water supplies—over a 14-year period, using disaggregated (facility-level) data and policy variation in financing the cleanup of tank leaks over time. The data indicate that eliminating a state-level government assurance program and switching to private insurance markets to finance cleanups reduce the frequency of underground fuel tank leaks by more than 20 percent. This corresponds to more than 3,000 fuel tank release accidents forgone over 8 years in one state alone, a benefit in avoided cleanup costs exceeding

Do Environmental Regulations Cause Firms to Exit the Market? Evidence from Underground Storage Tank (UST) Regulations

400 million. These benefits arise because private insurers mitigate moral hazard by providing financial incentives for tank owners to close or replace leak-prone tanks prior to costly accidents.

What changes energy consumption? Prices and public pressures

This paper examines whether Underground Storage Tank (UST) regulations had uneven impacts on petroleum retail outlets, and explores the reasons why some outlets are more likely to exit the market than others under UST regulations. The analyses suggest that both the economies of scale and the liquidity constraints arguments can explain the uneven impact UST regulations had on different petroleum retail outlets. Economies of scale give large outlets a greater competitive advantage because it is more difficult for small outlets to pass on compliance costs to customers. Liquidity constraints make outlets owned by small firms more vulnerable to UST regulations because small firms do not have the financial capability to replace or upgrade equipment as required by UST technical standards. This suggests that small businesses have more difficulties competing with large businesses under environmental regulations.