IDEAS home Printed from https://ideas.repec.org/p/hrv/hksfac/5027954.html
   My bibliography  Save this paper

Deterring and Compensating Oil Spill Catastrophes: The Need for Strict and Two-Tier Liablility

Author

Listed:
  • Kip, Viscusi, W.
  • Zeckhauser, Richard Jay

Abstract

The 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 firm’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.

Suggested Citation

  • Kip, Viscusi, W. & Zeckhauser, Richard Jay, 2011. "Deterring and Compensating Oil Spill Catastrophes: The Need for Strict and Two-Tier Liablility," Scholarly Articles 5027954, Harvard Kennedy School of Government.
  • Handle: RePEc:hrv:hksfac:5027954
    as

    Download full text from publisher

    File URL: http://dash.harvard.edu/bitstream/handle/1/5027954/RWP11-025_Viscusi_Zeckhauser.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Timothy Jun Lu & Olivia S. Mitchell, 2010. "Borrowing from Yourself: The Determinants of 401(k) Loan Patterns," Working Papers wp221, University of Michigan, Michigan Retirement Research Center.
    2. Li, Geng & Smith, Paul A., 2010. "401(K) LOANS and HOUSEHOLD BALANCE SHEETS," National Tax Journal, National Tax Association, vol. 63(3), pages 479-508, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Viscusi, Kip W. & Zeckhauser, Richard Jay, 2011. "Addressing Catastrophic Risks: Disparate Anatomies Require Tailored Therapies," Scholarly Articles 5688700, Harvard Kennedy School of Government.
    2. Charles F. Mason, 2017. "Public Policy Towards Offshore Oil Spills," CESifo Working Paper Series 6584, CESifo Group Munich.

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hrv:hksfac:5027954. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Office for Scholarly Communication). General contact details of provider: http://edirc.repec.org/data/ksharus.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.