The Political Economy of the Spill

The Exxon-Valdez spill, if not great for wildlife, was a boon for lawyers and economic consultants. The Gulf spill surely promises to be much more given its greater magnitude and impact on economic activity rather than just the environment alone. The biggest risk faced by BP is the potentially unending liability bill from all this. That risk is shared by all of the other oil companies who will face higher insurance premiums and a likely new set of regulatory requirements; both of which are justified on the basis of the current rules of the game.

What will happen of course is that the oil companies will realise this and lobby the US government for a containment strategy. Not of the spill but of the potential liability. There are already some caps on this from government but it is the rest that they will worry about. They will lobby Congress to take this one out of the legal tort system with its emotional juries and rent-seeking lawyers and move it to a Commission or arbitration process. That will take years and employ lots of lawyers but it will be less open-ended and more organised.

Basically, I think that a market for liability will be formed and will become centrally coordinated. Anyhow, this is all just speculation but it is more fun to speculate before things are resolved. If I am right, you can be all assured that I will let you know.