Speaker:
Ian Appel
Boston College
Discussant:
Oren Sussman
University of Oxford
Abstract
Paper Authors: Pat Akey and Ian Appel
We study how parent liability for subsidiary environmental cleanup costs a↵ects industrial pollution and production. Our empirical setting exploits a Supreme Court decision that strengthened parent limited liability protection for some subsidiaries. Using a di↵erence-in-di↵erences framework, we find that increased liability protection for parents leads to a 5–9% increase in toxic emissions by subsidiaries. Evidence suggests the increase in pollution is driven by lower investment in abatement technologies rather than reallocation across plants or increased production. Cross-sectional tests suggest a harm-shifting motivation for these effects. Overall, our results highlight moral hazard problems associated with limited liability.
