The Spill

I haven't had much to say on the Big Spill in the Gulf.  Despite the media frenzy, I think it's still hard to tell how all this will shake out economically speaking.

Although I hear environmental economists are being lined up to value damages...  There's a clear hit to tourism in the Gulf already.  But then there will be gains in other places--people will go to the mountains instead of the beach.  If this stuff hits Miami watch the numbers explode.  If it screws up most the southern beaches then scarce and less perfect substitution possibilities will make welfare impacts much larger.

How deep are BPs pockets?  How limited is their liability, legally speaking?  Pretty deep and I don't know.

In comparison to Exxon Valdez, it looks like the bigger numbers will come from relatively more tangible and measurable things--like tourism and recreation--as opposed to more controversial measures, like non-market values of birds and turtles.

It seems to me BP was in fact irrational when it came to prevention efforts.  The risks and potential damages to their bottom line profits were, objectively I suspect, way larger than BP's CEOs thought, despite warnings from their engineers.  Especially if the executives were to have considered both the legal response and the policy response and to a potential disaster.  Prospects for deep sea drilling now look dim, even if it can be done safely.   If drilling continues, regulations will be stiff and quite costly.

I smell hubris and arrogance.

Which makes me wonder: even if liability weren't limited would these companies always behave? Full liability would certainly help a lot.  But when these companies get big enough to assume so much liability, then they are big enough to do an extraordinary amount of damage.  One stupid mistake, a single act of hubris, reeks havoc.


  1. The spill has brought a lot. And it was the worst. I can't think of any great solution for this.


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