Monday, June 7, 2010

157 / Spillonomics

Here is something worth thinking about:
In a little-noticed provision in a 1990 law passed after the Exxon Valdez spill, Congress capped a spiller's liability over and above cleanup costs at $75 million for a rig spill. Even if the economic damages - to tourism, fishing and the like - stretch into the billions, the responsible party is on the hook for only $75 million. Michael Greenstone, an M.I.T. economist who runs the Hamilton Project in Washington, says the law fundamentally distorts a company's decision making. Without the cap, executives would have to weigh the possible revenue from a well against the cost of drilling there and the risk of damage. With the cap, they can largely ignore the potential damage beyond cleanup costs. So they end up drilling wells even in places where the damage can be horrific, like close to a shoreline. To put it another way, human frailty helped BP's executives underestimate the chance of a low-probability, high-cost event. Federal law helped them underestimate the costs.

The way I read this, our "legislative" actions (in the world we define and create) clearly had a causative impact in the "real" world of nature. To the detriment of nature, in this instance. It could have gone the other way.

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