Up in Smoke: The Impact of Wildfire Pollution on Healthcare Municipal Finance

Luis López, Dermot Murphy (), Nitzan Tzur-Ilan and Sean Wilkoff ()
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Dermot Murphy: https://business.uic.edu/profiles/murphy-dermot/
Sean Wilkoff: https://www.unr.edu/business/faculty-and-staff/wilkoff-sean

No 2503, Working Papers from Federal Reserve Bank of Dallas

Abstract: Climate risk pricing is not necessarily tied to physical damages from local climate events. Large-scale wildfires generate hazardous smoke plumes that impose costs on distant hospitals by increasing relative demand from underinsured patients. We show that wildfire smoke increases credit risk in the healthcare municipal bond market, especially in areas with high underinsurance. A natural experiment using the staggered expansion of Medicaid provides additional evidence consistent with the underinsurance channel. Hospital-level tests indicate that wildfire smoke reduces profitability and investment growth. Out-of-state wildfire smoke similarly increases healthcare credit risk, indicating that unchecked wildfires impose negative externalities on other states.

Keywords: municipal bonds; wildfires; air pollution; healthcare finance; externalities (search for similar items in EconPapers)
JEL-codes: H74 I11 O18 Q54 R31 (search for similar items in EconPapers)
Pages: 66
Date: 2025-01-09, Revised 2026-10
New Economics Papers: this item is included in nep-env, nep-hea and nep-ure
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DOI: 10.24149/wp2503r1

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