Pollution liability insurance and corporate environmental compliance in China

Abstract This study examines the effect of a pollution liability insurance mandate on corporate environmental compliance in Shenzhen, China. We employ a triple differences design, comparing electroplating and circuit board (ECB) manufacturing firms, mandated to purchase insurance, to industries and a neighboring city without the mandate. Results show a 0.48 reduction in annual environmental violations per firm (a 72% decrease) across all Shenzhen ECB firms. Within the Shenzhen ECB industry, only about half of firms comply. Notably, both insured and uninsured firms reduced violations, consistent with anticipation that (eventual) premiums would depend on past violations. The insurance could generate two opposing forces: premium‐based incentives to reduce violations versus moral hazard among the insured. We find suggestive evidence that insured firms' environmental compliance gains are partially offset by moral hazard. Our findings demonstrate that premium‐based incentives dominate and effectively counteract market failures due to asymmetric information, increasing environmental compliance on net.

Authors

Institutions

Publication Details

Journal
Journal of Risk & Insurance
Published
2025-11-26
DOI
https://doi.org/10.1111/jori.70029
Primary Topic
Energy, Environment, Economic Growth
Type
article
Field-Weighted Citation Impact
0.00
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
article

Pollution liability insurance and corporate environmental compliance in China

Alecia Cassidy, Fan Wu, Yiyuan Zhang
Journal of Risk & Insurance
Energy, Environment, Economic Growth
article

Pollution liability insurance and corporate environmental compliance in China

Alecia Cassidy, Fan Wu, Yiyuan Zhang
article en

Abstract

Abstract This study examines the effect of a pollution liability insurance mandate on corporate environmental compliance in Shenzhen, China. We employ a triple differences design, comparing electroplating and circuit board (ECB) manufacturing firms, mandated to purchase insurance, to industries and a neighboring city without the mandate. Results show a 0.48 reduction in annual environmental violations per firm (a 72% decrease) across all Shenzhen ECB firms. Within the Shenzhen ECB industry, only about half of firms comply. Notably, both insured and uninsured firms reduced violations, consistent with anticipation that (eventual) premiums would depend on past violations. The insurance could generate two opposing forces: premium‐based incentives to reduce violations versus moral hazard among the insured. We find suggestive evidence that insured firms' environmental compliance gains are partially offset by moral hazard. Our findings demonstrate that premium‐based incentives dominate and effectively counteract market failures due to asymmetric information, increasing environmental compliance on net.

Journal of Risk & Insurance
RWI – Leibniz Institute for Economic Research (DE), San Francisco Art Institute (US), University of Alabama (US), China Europe International Business School (CN)
Openalex Percentile: Top 56%
Energy, Environment, Economic Growth
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.