Drilling Like There's No Tomorrow: Bankruptcy, Insurance, and Environmental Risk
American Economic Review · 2019 · Volume 109 · Issue 2
Abstract
This paper measures the effects of bankruptcy protection on industry structure and environmental outcomes in oil and gas extraction. Using administrative data from Texas, I exploit variation in an insurance requirement that reduced firms' ability to avoid liability through bankruptcy. Among small firms, the policy substantially improved environmental outcomes and reduced production. Most production was reallocated to larger firms with better environmental records, but high-cost production where social cost may have exceeded social benefit decreased. These results suggest that incomplete internalization of environmental costs due to bankruptcy is an important determinant of industry structure and safety effort in hazardous industries.
Keywords
Insurance, Insurance Companies, Actuarial Studies, Bankruptcy, Liquidation, Firm Performance: Size, Diversification, and Scope, Mining, Extraction, and Refining: Hydrocarbon Fuels, Hydrocarbon Resources, Pollution Control Adoption and Costs, Distributional Effects, Employment Effects
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