How Does Liability Affect Prices? Railroad Sparks and Timber

42 Pages Posted: 26 Sep 2021 Last revised: 29 Oct 2021

See all articles by Colin Doran

Colin Doran

George Mason University - Department of Economics

Thomas Stratmann

George Mason University - Buchanan Center Political Economy; George Mason University - Mercatus Center; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 18, 2020

Abstract

This paper analyzes how judicially-determined liability assignments affect valuations and prices. On two occasions in 2007, a railway company caused a fire to break out in the State of Washington. The two fires burned down some of the neighboring properties’ timber. These two incidents led to two companion court cases that made it all the way to the Washington Supreme Court. The court rulings, both made on May 31, 2012, hold that the railway company was not liable for timber damages under Washington’s timber trespass statute, despite having acted negligently. As a consequence of these decisions, economic theory predicts a decrease in the value of timber in those areas associated with higher risk of fire, and an increase in the value of Washington railway companies. Using a triple difference model and an event study, we test and find evidence supporting this prediction.

Suggested Citation

Doran, Colin and Stratmann, Thomas, How Does Liability Affect Prices? Railroad Sparks and Timber (December 18, 2020). Doran, C., & Stratmann, T. (2021). How Does Liability Affect Prices? Railroad Sparks and Timber. International Review of Law and Economics, 66., GMU Working Paper in Economics No. 21-26, Available at SSRN: https://ssrn.com/abstract=3911508

Colin Doran (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

Thomas Stratmann

George Mason University - Buchanan Center Political Economy ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-2330 (Phone)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

HOME PAGE: http://www.mercatus.org/scholars/thomas-stratmann

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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