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Michael Ohlrogge, Stanford University: Bankruptcy Claim Dischargeability and Public Externalities: Evidence from a Natural Experiment

November 27, 2018 @ 11:00 am - 12:30 pm

In 2009, the Seventh Circuit ruled in U.S. v. Apex Oil that certain types of injunctions requiring firms to clean up previously released toxic chemicals were not dischargeable in bankruptcy. This was widely perceived to represent a split with Sixth Circuit precedent, although Supreme Court cert was denied. Numerous legal commentators wrote of the significance of this decision in strengthening incentives for firms, and their creditors, to reduce the likelihood of costly environmental damage that would no longer be dischargeable in the event of bankruptcy. I show using difference in differences and triple difference methodologies that companies whose operations are confined to the Seventh Circuit (and thus likely to file for bankruptcy there) responded by reducing the volume of toxic chemicals they release on-site by approximately 15%. In place of these releases, firms substituted off-site treatment by specialized facilities generally considered to be safer for the environment. I also show evidence of a tightening of credit to impacted firms, helping shed light on the mechanism of influence via pressure from creditors. These results point to important ways in which bankruptcy law and other legal rules that impact recovery for firms’ creditors can work to shape the positive or negative externalities those firms generate.

Download paper: Michael Ohlrogge_SSRN-id3273486

Read the paper this talk is based on: Michael Ohlrogge_SSRN-id3273486


November 27, 2018
11:00 am - 12:30 pm
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1011 Evans Hall
1011 Evans Hall
Berkeley, CA 94720 United States
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