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Can Environmental Insurance Succeed Where Other Strategies Fail? The case of underground storage tanks.

Haitao Yin, Alexander Pfaff, Howard Kunreuther
Risk Analysis 2011 volume 31 number 1: 12-24 (doi 10.1111/j.1539-6924.2010.01479.x)

PDF link iconPrivate risk reduction will be socially efficient only when firms are liable for all the damage that they cause. We find that environmental insurance can achieve social efficiency even when two traditional policy instruments—ex post fines and risk management mandates with ex ante fines—do not. Inefficiency occurs with ex post fines, when small firms declare bankruptcy and escape their liabilities, limiting the incentives from this policy tool. Firms ignore mandates to implement efficient risk management because regulatory agencies do not have sufficient resources to monitor every firm. The evolution of the U.S. Environmental Protection Agency’s and states’ underground storage tank programs suggests that mandating environmental insurance can address inefficiency due to small firms declaring bankruptcy. Comparing insurance mandates to risk management mandates, the burden on a regulator is lower if all it has to do is to confirm that the firm has insurance rather than that the firm has actually, and effectively, implemented required management practices. For underground storage tanks, we show that insurance lowered toxic releases.


Demonstrating bias and improved inference for stoves’ health benefits

Valerie Mueller, Alexander Pfaff, John Peabody, Yaping Liu, Kirk R. Smith
International Journal of Epidemiology (2011) 1–9 [doi:10.1093/ije/dyr150]

PDF link iconBACKGROUND: Many studies associate health risks with household air pollution from biomass fuels and stoves. Evaluations of stove improvements can suffer from bias because they rarely address health-relevant differences between the households who get improvements and those who do not. METHODS: We demonstrate both the potential for bias and an option for improved stove inference by applying to household air pollution a technique used elsewhere in epidemiology, propensity-score matching (PSM), based on a stoves-and-health survey for China (15 counties, 3500 households). RESULTS: Health-relevant factors (age, wealth, kitchen ventilation) do in fact differ considerably between the households with stove improvements and those without. We study the resulting bias in estimates of cleaner-stove impacts using a self-reported Physical Component Summary (PCS). Typical stoves-literature regressions with little control for non-stove factors suggest no benefits from a cleaner-fuel stove relative to a traditional biomass stove. Yet increasing controls raises the impact estimates. Our PSM estimates address the differences in health-relevant factors using ‘apples to apples’ comparisons between those with improved stoves and ‘similar’ households. This generates higher estimates of clean-stove benefits, which are on the order of one half the standard deviation of the PCS outcome. CONCLUSIONS: Our data demonstrate the potential importance of bias in household air pollution studies. This results from failure to address the possibility that those receiving improved stoves are themselves prone to better or worse health outcomes. It suggests the value of data collection and of study design for cookstove interventions and, more generally, for policy interventions within many health outcomes.


Efficiency and equity in negotiated resource transfers: contributions and limitations of trust with limited contracts

Alexander Pfaff, Maria Alejandra Velez
Ecological Economics 74 (2012) 55–63

PDF link iconWe consider a case of water reallocation in Brazil, one which has numerous analogs elsewhere. To permit empirical study of the effects of institutions that can facilitate or restrict  allocations, we conducted field experiments to explore trust’s potential when resource contracts are limited, using a novel asymmetric-productivity ultimatum game with a final surplus-sharing step added. As a form of informal institution, trust could in principle make rights and contracts unnecessary. We observe whether trust in compensation is in fact expected and expressed. We also explore whether trust is exploited, and the effect of communication, within our two bargaining structures: (1) no communication; and (2) with a non-binding message concerning the surplus to be shared. We see that our participants both expect and express trust that some of the surplus will be shared. Trust raises total output and some surplus is indeed shared: those who trust gain a bit on average; and the more trust was shown, the more was shared. However, often the trust was barely repaid. Further, the messages—found to help in other research—had little impact and were often untrue. In sum, trust does matter but both efficiency and equity could well rise with complete contracts.


Assessing the impact of institutional design of Payments for Environmental Services: the Costa Rican experience

Juan Robalino, Alexander Pfaff, Laura Villalobos
B. Rapidel, F. DeClerk, J. LeCoq and J. Beer Eds. “Ecosystem services from Agriculture and Agroforestry: Measurement and Payment”. Chapter 14. Earthscan Press.

PDF link iconin Costa Rica. The first years of implementation set the basis for what the programme has become. Important changes have been made since the beginning, such as the institution in charge of implementing the programme, parcels selection criteria, and new offices that were opened in different areas of the country with the objective of reducing application costs. Using 2003 as the starting point of when these changes took place, we discuss if they had a programme efficiency effect on reducing deforestation. We focus on forest conservation contracts because it is the most important category of the programme in terms of budget and amount of land enrolled. We use matching techniques, geographic information systems (GIS), characterize the areas where payments were implemented in each of the time periods using a long list of variables, and look for similar areas that did not receive payments. We find that, as other studies have found for this period (Robalino et al, 2008; Arriagada, 2008), the impacts are low but significant. While it seems that, overall, institutional changes have not had a significant effect on impact, we also look at the impacts of forest conservation contracts per office. We find that those offices located in areas with high deforestation tend to have higher impacts.