Deterring and Compensating Oil Spill Catastrophes: The Need for Strict and Two-Tier Liablility
AbstractThe BP Deepwater Horizon oil spill highlighted the glaring weakness in the current liability and regulatory regime for oil spills and for environmental catastrophes more broadly. This article proposes a new liability structure for deep sea oil drilling and for catastrophic risks generally. It delineates a two-tier system of liability. The first tier would impose strict liability up to the firmâ€™s financial resources plus insurance coverage. The second tier would be an annual tax equal to the expected costs in the coming year beyond this damages amount. A single firm will be identified as responsible for generating the risk. It would be required to demonstrate substantial ability to pay in the first tier before being permitted to engage in the risky activity. This structure provides for efficient deterrence for environmental catastrophes, since the responsible party is bearing in expectation the risks it is imposing. It also addresses the challenges posed by the fat-tailed distributions of catastrophic environmental risks and provides for more assured and adequate compensation of potential losses than current liability and regulatory arrangements.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Harvard Kennedy School of Government in its series Scholarly Articles with number 5027954.
Date of creation: 2011
Date of revision:
Publication status: Published in HKS Faculty Research Working Paper Series
Other versions of this item:
- Viscusi, W. Kip & Zeckhauser, Richard J., 2011. "Deterring and Compensating Oil Spill Catastrophes: The Need for Strict and Two-Tier Liability," Working Paper Series rwp11-025, Harvard University, John F. Kennedy School of Government.
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
- NEP-ENE-2012-05-29 (Energy Economics)
- NEP-ENV-2012-05-29 (Environmental Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Viscusi, W. Kip & Zeckhauser, Richard J., 2011.
"Addressing Catastrophic Risks: Disparate Anatomies Require Tailored Therapies,"
Working Paper Series
rwp11-045, Harvard University, John F. Kennedy School of Government.
- Viscusi, Kip W. & Zeckhauser, Richard Jay, 2011. "Addressing Catastrophic Risks: Disparate Anatomies Require Tailored Therapies," Scholarly Articles 5688700, Harvard Kennedy School of Government.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ben Steinberg).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.