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The winding road to industrial safety. Evidence on the effects of environmental liability on accident prevention in Germany

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  • Onno Hoffmeister
  • Reimund Schwarze

Abstract

The German Environmental Liability Law (ELL) of 1991 has introduced far-reaching civil liability for environmental damages with the aim to increase firms' efforts to prevent accidents. Previous studies find poor evidence that this goal has actually been achieved. One and a half decades after the introduction of that law, we undertake a new attempt to investigate the impact of the ELL on accident prevention. Our analysis is based on annual data on the number of environmental accidents per year, reported to the monitoring agency ZEMA, and the risk premium imposed by a large German insurer on environmental liability insurance (ELI). As reliable accident reporting has begun only after the implementation of the new law into practice, pre- and post-reform levels of accident prevention cannot be directly compared. However, the time series of ELI premiums cuts across these two periods. Once we examine the relationship between the ELI premium and accident prevention and observe the effect of the reform impulse on the former, we are able to model the dynamics of the adjustment process induced by the ELL. According to our results, the average number of environmental accidents per year has decreased from 29 before to 17 and a half after the reform. Our dynamic analysis reveals an overshooting of the insurance premiums in the first years after the reform and a successive decrease from 1997 onwards. The premiums and firms' prevention efforts achieved a new equilibrium in 2000.

Suggested Citation

  • Onno Hoffmeister & Reimund Schwarze, 2007. "The winding road to industrial safety. Evidence on the effects of environmental liability on accident prevention in Germany," Working Papers 2007-11, Faculty of Economics and Statistics, Universität Innsbruck.
    • Handle: RePEc:inn:wpaper:2007-11
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    References listed on IDEAS

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    1. Alistair Ulph & Laura Valentini, 2001. "Is Environmental Dumping Greater when Plants are Footloose?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 673-688, December.
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    Cited by:

    1. Martin Eling, 2013. "Recent Research Developments Affecting Nonlife Insurance—The CAS Risk Premium Project 2011 Update," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 16(1), pages 35-46, March.

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    More about this item

    Keywords

    Environmental liability; accident prevention; empirical analysis; Germany;
    All these keywords.

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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