Department of Economics, U Michigan
238 Lorch Hall, 611 Tappan St.
Ann Arbor, MI 48109-1220
NBER Working Papers and Publications
|January 2014||Advertising as Insurance or Commitment? Evidence from the BP Oil Spill|
with Lint Barrage, Justine Hastings: w19838
This paper explores how advertising impacts the consumer response to news about unobserved product quality. Specifically, we estimate how British Petroleum’s (BP) 2000-2008 “Beyond Petroleum” advertising campaign affected the impact of the 2010 BP oil spill. We find that BP station margins declined by 4.2 cents per gallon, and volumes declined by 3.6 percent after the spill. However, pre-spill advertising significantly dampened the price response in the short-run, and reduced the fraction of BP stations switching brand affiliation in the long-run. Our results suggest that advertising provides insurance against adverse events. We discuss implications for private provision of environmental stewardship.