Can Environmental Insurance Succeed Where Other Strategies Fail? The Case of Underground Storage Tanks

Risk Analysis, 2011, 31(1):12-24

30 Pages Posted: 10 Sep 2008 Last revised: 21 Jun 2014

See all articles by Howard Kunreuther

Howard Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department; National Bureau of Economic Research (NBER)

Alexander Pfaff

Duke University - Policy, Economics, Environment; Duke University - Department of Psychology and Neuroscience

haitao Yin

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Date Written: September 9, 2008

Abstract

Private risk reduction will be socially efficient only when firms are liable for all the damage that they cause. We find that environmental insurance can achieve efficiency even when fines and management mandates do not. The evolution of the U.S. Environmental Protection Agency's and states' Underground Storage Tank programs suggests that despite the hurdles for novel insurance products, mandating environmental insurance can succeed. The possession of insurance is much easier to monitor than the implementation of a mandate to do socially efficient risk management. Insurance also addresses the problem of small firms declaring bankruptcy, which limits the economic incentive of large ex-post, i.e. damage-based, fines.

Keywords: Insurance, Fines, Risk Management, Environment, Regulation, Underground Storage Tanks

JEL Classification: G22, M48, Q51

Suggested Citation

Kunreuther, Howard C. and Pfaff, Alexander and Yin, Haitao, Can Environmental Insurance Succeed Where Other Strategies Fail? The Case of Underground Storage Tanks (September 9, 2008). Risk Analysis, 2011, 31(1):12-24 . Available at SSRN: https://ssrn.com/abstract=1265658 or http://dx.doi.org/10.2139/ssrn.1265658

Howard C. Kunreuther (Contact Author)

University of Pennsylvania - Operations, Information and Decisions Department ( email )

3730 Walnut Street
558 & 559 Jon M. Huntsman Hall
Philadelphia, PA 19104-5340
United States
212-854-0423 (Phone)
215-573-2130 (Fax)

National Bureau of Economic Research (NBER)

Alexander Pfaff

Duke University - Policy, Economics, Environment ( email )

201 Science Drive
Box 90312
Durham, NC 27708-0239
United States

Duke University - Department of Psychology and Neuroscience ( email )

Durham, NC 27708
United States

Haitao Yin

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Register to save articles to
your library

Register

Paper statistics

Downloads
108
Abstract Views
983
rank
250,146
PlumX Metrics