Working Papers (Links in Bold Font)
"Climate Change and the Regulation of a Crashing Insurance Market" with Madeline Turland and Joakim Weill
- Abstract: Climate change threatens the functioning of private insurance markets as natural disasters become more frequent and severe. Increasingly, customers are unable to find insurance in the voluntary market, forced to turn towards state-sponsored residual risk pools known as "insurers of last resort" as firms seek to limit exposure to catastrophic losses. In this paper, we examine how distortionary price regulation and market structure can lead to an unraveling when firms face rapidly increasing risk due to climate change. We develop a model of an adversely selected natural disaster insurance market with an empirical application to California, the largest homeowner insurance market in the country. We analyze the welfare impacts of the California non-renewal moratoriums, a first-of-its-kind regulation aimed at stymieing the retreat of insurance companies from high wildfire risk areas by forcing insurers to supply insurance to current customers following disasters in 2019 and 2020. Using quasi-random geographic variation in regulatory borders and the location of wildfires, and a difference-in-differences identification strategy, we show that the moratorium succeeded in slowing the retreat of firms, but that the effect only lasted for the one-year length of the moratorium, with firms simply pushing non-renewals to after the moratorium was lifted.
- Abstract: As California's gasoline prices consistently exceed the rest of the country, there has been significant interest among policymakers in understanding the role of market power in the state's retail gasoline market. In this paper, I estimate the effect of nearby entry and exit on the pricing of incumbent firms using high frequency price data and the precise geographic location of all gas stations in California. Using a difference-in-differences design, I find that entry of a new station is associated with a two-cent decrease in prices at incumbent stores, which equates to a 5% decrease in estimated retail markups. The effects are immediate, persistent, and show no sign of deterrence or limit pricing behavior. However, nearby exit results in precisely estimated null effects on prices. Both results are robust to various specifications and market size definitions. This paper also contributes to the conversation on California's "Mystery Gas Surcharge", a divergence between California and nationwide gas prices after the February 2015 Torrance refinery fire that cannot be explained by differences in taxes, regulation, or input and spot prices (Borenstein (2023)). I show that after prices did not respond differentially to the supply shock by market concentration and that the magnitude of entry effects were unchanged, providing evidence that retail competition was largely unaffected.
- Abstract: Implementation of the Affordable Care Act (ACA) has been causally linked to an increase in the rate of the population covered by health insurance through expansions of the Medicaid program and revisions to the private insurance markets. We add to the body of literature on unintended consequences of the ACA by establishing the causal impact of its implementation on automobile insurance claims. Automobile insurance overlaps significantly with health insurance in its coverage of medical costs, making it susceptible to changes in consumer interactions with the healthcare system. Our estimates identify a plausibly causal impact of the ACA on the frequency of automobile insurance claims. We find that these increases are restricted to the private market portion of the ACA, and is associated with an average 13.6% increase in bodily injury liability claim frequency, as well as smaller increases in Property Damage liability (10.6%) and Collision (7.1%) frequencies, while Medicaid expansions lead to a nearly equal reduction in claim frequencies. We find that the impact of the ACA is concentrated along the extensive margin, with no discernible effect of the ACA on average claim severities.
"Do Bill Shocks Induce Energy Efficiency Investments?" with David Rapson, Corey Lang, and Kevin Nakolan
- Abstract: Electricity bill shocks can draw attention to the benefits of home energy efficiency investments. Our novel identification strategy builds on the fact that prolonged extreme weather events (which raise electricity costs for many customers) fall within a single billing month for some customers but are split across bills for others. We find that households exposed to bill shocks are 22 percent more likely to invest in energy efficiency upgrades than households for whom the same weather shock was split across two bills. This result suggests that an opportunity exists for electric utilities to overcome consumer inattention around energy efficiency investments by targeting information to households who have experienced bill shocks.
Works in Progress
"Evaluating Supply- and Demand-Side Subsidies in California Electric Vehicle Pricing" with Marc Rysman, David Rapson, and Shuang Wang