The Consequences of Wildfire Liability for Firm Precaution: Evidence from Power Shutoffs in California

70 Pages Posted: 1 Apr 2024

See all articles by Christopher Malloy

Christopher Malloy

University of Oklahoma - Department of Economics

Abstract

This study examines firm responses to the entire distribution of potential liability by studying power line-ignited fires in California’s electric utility sector. In this setting, when a power line-ignited fire damages a structure, the owner of the power line assumes the cost. The unique setting allows me to estimate how firm precautions vary across the entire distribution of liabilities they face. Using exogenous variation in the replacement cost of structures that lie downwind of power lines, I show that firms increase their precaution by 100% in response to a $690 millionincrease in liability. Furthermore, I show that firms’ precautionary responses weaken as the likelihood of bankruptcy from expected liability increases. In the short run, the estimates from this study imply that firms’ consideration of liability has heterogeneous welfare consequences across California.

Keywords: Energy, Liability, Wildfire Ignition, Electricity Distribution, Power Lines

Suggested Citation

Malloy, Christopher, The Consequences of Wildfire Liability for Firm Precaution: Evidence from Power Shutoffs in California. Available at SSRN: https://ssrn.com/abstract=4780392 or http://dx.doi.org/10.2139/ssrn.4780392

Christopher Malloy (Contact Author)

University of Oklahoma - Department of Economics ( email )

729 Elm Avenue
Norman, OK 73019-2103
United States

HOME PAGE: http://chrismalloyecon.com

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