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Beyond Liability: An Analysis of Financial Responsibility and Care Decisions in Hazardous Waste Management Facilities

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  • Zhou, Jane

Abstract

To ensure the availability of cleanup funds, federal regulators often require ex ante proof of ability-to-pay for future environmental liabilities. These regulations currently apply to hazardous waste managers under the Resource Conservation and Recovery Act, and are being considered for expanded applicability to other industries. Regulators have long expressed concern regarding the reliability of self-insurance. Little economic work, however, has studied the differing incentive effects of different financial assurance mechanisms, such as self-insurance, insurance, or trust funds. Using a novel facility-level panel dataset, I test this hypothesis using data on firm financial assurance and chemical spills. I find that self-insurance mechanisms are strongly associated with increased spill rates. This paper shows that with noncompetitive insurance markets, third-party financial instruments may act as “private regulators" and incentivize facilities to exercise increased care against environmental damage. This association may also result from high-risk firms' selection into self-insurance.

Suggested Citation

  • Zhou, Jane, 2014. "Beyond Liability: An Analysis of Financial Responsibility and Care Decisions in Hazardous Waste Management Facilities," Working Papers 182293, University of Maryland, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:umdrwp:182293
    DOI: 10.22004/ag.econ.182293
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    Cited by:

    1. Sara Aghakazemjourabbaf & Margaret Insley, 2018. "Optimal timing of harzardous waste clean-up under an environmental bond an a strict liability rule," Working Papers 1803, University of Waterloo, Department of Economics, revised 06 Jan 2018.
    2. Aghakazemjourabbaf, Sara & Insley, Margaret, 2021. "Leaving your tailings behind: Environmental bonds, bankruptcy and waste cleanup," Resource and Energy Economics, Elsevier, vol. 65(C).

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    Keywords

    Environmental Economics and Policy; Public Economics; Risk and Uncertainty;
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