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Controlling Stochastic Pollution Events through Liability Rules: Some Evidence from OCS Leasing

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  • James J. Opaluch
  • Thomas A. Grigalunas

Abstract

Under the OCS Lands Act, firms are strictly liable for damages from oil spills. To the extent that this liability rule causes firms to internalize environmental risks, incentives for damage avoidance behavior are provided. Using data from the 1979 Georges Bank lease sale, we use a robust estimation technique to test the hypothesis that potential environmental costs are reflected in bids for OCS leases. The results indicate a substantial response to environmental risks. Recognizing reduced rents, we estimate that total high bids have declined by 20% because of firms' perceptions of environmental risks. The results suggest that liability rules have considerable potential in controlling stochastic pollution events.

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  • James J. Opaluch & Thomas A. Grigalunas, 1984. "Controlling Stochastic Pollution Events through Liability Rules: Some Evidence from OCS Leasing," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 142-151, Spring.
    • Handle: RePEc:rje:randje:v:15:y:1984:i:spring:p:142-151
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    Cited by:

    1. Alberini, Anna & Austin, David H., 1999. "Strict Liability as a Deterrent in Toxic Waste Management: Empirical Evidence from Accident and Spill Data," Journal of Environmental Economics and Management, Elsevier, vol. 38(1), pages 20-48, July.
    2. Jonathan Yoder, 2008. "Liability, Regulation, and Endogenous Risk: The Incidence and Severity of Escaped Prescribed Fires in the United States," Journal of Law and Economics, University of Chicago Press, vol. 51(2), pages 297-325, May.
    3. Laffont, Jean-Jacques, 1995. "Regulation, moral hazard and insurance of environmental risks," Journal of Public Economics, Elsevier, vol. 58(3), pages 319-336, November.
    4. McKitrick, Ross, 2017. "Global energy subsidies: An analytical taxonomy," Energy Policy, Elsevier, vol. 101(C), pages 379-385.
    5. Alló, Maria & Loureiro, Maria L., 2013. "Estimating a meta-damage regression model for large accidental oil spills," Ecological Economics, Elsevier, vol. 86(C), pages 167-175.
    6. Grigalunas, Thomas A. & Opaluch, James J. & French, Deborah & Reed, Mark, 1986. "Measuring Damages to Coastal and Marine Natural Resources from Oil and Hazardous Substance Spills: Application of An Integrated Ocean Systems/Economic Model," 1986 Annual Meeting, July 27-30, Reno, Nevada 278127, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Zhou, Jane, 2014. "Beyond Liability: An Analysis of Financial Responsibility and Care Decisions in Hazardous Waste Management Facilities," Working Papers 182293, University of Maryland, Department of Agricultural and Resource Economics.
    8. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
    9. Di Jin & Hauke Kite-Powell & James Broadus, 1994. "Dynamic economic analysis of marine pollution prevention technologies: An application to double hulls and electronic charts," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(6), pages 555-580, December.
    10. Jon Strand, 1994. "Environmental accidents under moral hazard and limited firm liability," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(5), pages 495-509, October.

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