TY  - JOUR
AU  - Yin,Haitao
AU  - Kunreuther,Howard
AU  - White,Matthew
TI  - Risk-Based Pricing and Risk-Reducing Effort:  Does the Private Insurance Market Reduce Environmental Accidents?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15100
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15100
L1  - http://www.nber.org/papers/w15100.pdf
N1  - Author contact info:
Haitao Yin
Antai College of Economics and Management
Shanghai JiaoTong University
E-Mail: haitaoy77@hotmail.com

Howard Kunreuther
Operations and Information Management
The Wharton School
University of Pennsylvania
3730 Walnut Street, 500 JMHH
Philadelphia, PA 19104-6366
Tel: 215/898-4589
Fax: 215/573-2130
E-Mail: kunreuther@wharton.upenn.edu

Matthew White
ISO New England
One Sullivan Drive
Holyoke, MA 01040
E-Mail: matthew.white.phd@gmail.com
AB  - This paper examines whether risk-based pricing promotes risk-reducing effort.  Such mechanisms are common in private insurance markets, but are rarely incorporated in government assurance programs.  We analyze accidental underground fuel tank leaks--a source of environmental damage to water supplies--over a fourteen-year period, using disaggregate (facility-level) data and policy variation in financing the cleanup of tank leaks over time.  The data suggest that eliminating a state-level government assurance program and switching to private insurance markets to finance cleanups reduced the frequency of costly underground fuel tank leaks by more than 20 percent.  This corresponds to more than 3,000 avoided fuel-tank release accidents over eight years in one state alone, a benefit in avoided cleanup costs and environmental harm exceeding $400 million.  These benefits arise because private insurers mitigate moral hazard by providing financial incentives for tank owners to close or replace leak-prone tanks prior to costly accidents.
ER  -