Firms may under- or over-invest in risk management from the social planner’s perspective, resulting in a negative externality on other economic agents in the supply chain. This risk management externality is particularly relevant for food supply chains that constantly face exogenous shocks from varying sources and play a primary role in preventing major social losses from food insecurity. We build a theoretical model in the context of US agri-food supply chains, where intermediary firms choose the quantity of output and the investment in reducing operational risk. The model allows for flexible market structures and interdependence of risk investments among firms. We show that private firms invest in risk management less than the socially optimal level under perfect competition, but market power introduces competing risk management incentives and have critical implications for the social efficiency of policy interventions.

Nitrate pollution threatens human health and ecosystems in many regions of the world. Although scientists agree that nitrogen compounds from human activity, notably agriculture, enter the groundwater system, empirical estimates of the impacts of land use on nitrate concentrations in well water are still lacking. We provide evidence of such impacts by combining nitrate concentration measurements from about 6,000 groundwater wells with a data set of remotely sensed land uses for California over the period 2007–2023. Results show that a 10 percentage point increase in the share of land used to grow high-nitrogen crops within 500 meters of a well relative to undeveloped land is associated with a 12% increase in nitrate concentrations, while a 10 percentage point increase in the share of land used for low-intensity urban development is associated with a 10% increase. Local dairy cattle populations also meaningfully contribute to nitrate pollution. However, conditioning on initial nitrate measurements, we find limited evidence that human activity affects nitrate concentrations a decade later.

Nitrate contamination of drinking water is a widespread concern and threatens human health. The magnitude of the health consequences depends on individuals’ ability to avoid exposure. This paper uses an event-study framework to uncover avoidance behavior and infant mortality outcomes following Safe Drinking Water Act nitrate violations. Using store-level scanner data, I estimate that consumers spend $4.5 million annually on bottled water to avoid nitrate-contaminated drinking water. This protective behavior leads to 14 avoided infant deaths per year or $160 million in monetized benefits. These results underscore the benefits of avoiding nitrate-contaminated drinking water exceed the costs incurred by consumers.

Adaptation to environmental change can carry negative externalities. We document one such case: Farmers in California respond to heat and drought by extracting more groundwater, harming access to drinking water for nearby residents. Using yearly variation we show that surface water scarcity and heat increase agricultural well construction, groundwater depletion, and domestic well failures, and that well construction accounts for a large share of the latter effects. In our setting, adaptation also exacerbates inequality. Effects on domestic well failures are concentrated in low-income and Latino communities. Climate damage estimates may be incomplete without accounting for the external costs of adaptation.