Reducing Environmental Risks by Information Disclosure: Evidence in Residential Lead Paint Disclosure Rule

Abstract

AbstractRecently, there has been a surge in environmental regulations that require information disclosure. However, existing empirical evidence is limited to certain applications and has yet to generalize the effectiveness of this approach as a policy strategy to reduce environmental risks. This study evaluates the disclosure rule of the residential lead paint hazard (Title X) introduced in 1996. This regulation is one of the most prominent environmental disclosure laws, but its effectiveness has been relatively under‐investigated. Title X was intended to induce information recipients’ risk prevention behavior by proclaiming lead paint risk in old homes. Specifically, this study assumed three types of behavioral changes could be induced by Title X—(1) testing for lead paint, (2) maintaining painted surfaces in a proper condition, and (3) switching buying choice from old houses to new houses. In addition, using the national American Housing Survey, this study examined whether Title X increased the occurrence of those three behaviors. The results show that Title X increased the probability of homebuyers’ lead testing and decreased the probability of the existence of peeling paint in old homes. The analyses on households’ buying choices found that Title X did not result in a substantial switch from old houses to new houses in any socioeconomic status groups. However, it was found that the policy reduced the instances of households with young children occupying old homes. The findings in this study indicate that the policy generally induced more risk management behavior on existing risks and greatly influenced families with young children to such an extent that they changed their buying choice.