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« Risk assessment | Main | Socializing risk »

Jun 16, 2010

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Spag

I'll let Jon speak for himself, but to be fair- his mention of increasing the cap to $100 million was in reference to indexing it for inflation.

Also, you should ask his opponent what she thinks and why.

Roch101

Jon's opponent, Pricey Harrison, has proposed a bill that would, as described by Joe Guarino "lift the cap on liability damages for oil spills."

As I commented at Joe's, with liability caps, there are only three possibilities the costs of a spill surpass the liability cap:

1. Small businesses eat the economic loss and taxpayers pay for the clean up.
2. Small businesses eat the economic loss and clean up is not completed.
3. We rely on the goodwill of the company responsible to pay for it all.

Ed's question, "Who should pay any costs in excess of the cap?" is one Jon has not answered yet in opposing Pricey's bill.

Spag

I think then that maybe Ed should ask Pricey whether unlimited liability is "reasonable".

You wrote:

"there are only three possibilities the costs of a spill surpass the liability cap:

1. Small businesses eat the economic loss and taxpayers pay for the clean up.
2. Small businesses eat the economic loss and clean up is not completed.
3. We rely on the goodwill of the company responsible to pay for it all."

I'm not sure those logically follow from your sentence. Maybe you meant to write something else.

I think BP should pay out the ass for this disaster and I think the $75 million cap is way too low. However, I'm not sure unlimited liability would actually serve the purpose intended. At a minimum there would have to be some criminal negligence. Otherwise imposing unlimited liability on any company would stifle innovation.

I also wonder who should pay for the failed levies in New Orleans.

Jim Caserta

Sam, you should check out this other thread, especially Wharton's link to a WSJ article. In that, the writer proposes lifting the cap as an important way to prevent future spills. Other key points to know: BP has voluntarily foregone the cap, which is immaterial because: "Fortunately, the law removes that cap if the incident was caused by "the gross negligence or willful misconduct" of any party, or its failure to comply with any "applicable Federal safety, construction, or operating regulation."

The actual cap is also total cost of removal + $75M. The true cost of the spill is greater than merely the cost of cleanup. You could calculate the economic damages to workers who have been harmed directly and indirectly - fisherman & those involved in tourist industries. The $75M cap is a cap on those costs above cleanup. There is also the environmental cost which is harder to calculate.

I think Jon is also not understanding one of the points of raising the cap - the one emphasized by Epstein. Raising the cap has the intended consequence of pushing oil companies to use more precaution to avoid accidents. The point is not to get the pound of flesh, but to get companies to follow procedures that Exxon's CEO makes it so spills like this 'should not happen'. Consider that Exxon & BP have different policies on the safety of deepwater rigs (this is what Exxon has implied and what most of the news I've read points to BP being towards the lax end on safety). Now has that change in behavior made Exxon uncompetitive? Of course not, and considering how things have gone, their investment in safety is paying huge dividends.

Paying for or reaping the benefit of the consequences of a higher or lower investment in safety is part of how markets work - Epstein's point. I think, and Epstein agrees, that relying on the market alone for this is insufficient because a corporation could declare bankruptcy and the cost of damages doesn't provide the feedback intended. I am encouraged by BP's current actions as they point to doing what is necessary to keep BP a continuing concern and out of BK or dissolution where the healthy part of BP might be separated from its obligations.

Spag

There is a difference between raising the cap and removing it altogether, something you haven't addressed. The bankruptcy aspect is one reason why removing the cap altogether may not have the desired consequences.

JC (Jim Caserta)

The cap being moved from $75M to $100M is meaningless. Exxon is a company roughly $250B in size, so a $25M difference in cost is like someone worth $1M losing $100. The cap does not always apply: "the law removes that cap if the incident was caused by "the gross negligence or willful misconduct" of any party, or its failure to comply with any "applicable Federal safety, construction, or operating regulation."

My point, I guess not clear enough, is that removing the cap would not achieve what Epstein is looking for, and raising the cap would not have the impact (the to $100M would have ZERO impact) that Hardister fears. Effective regulation is the key, and it is something that even people like Tillerson would agree to. BP's spill hurts ExxonMobil because the spill will dramatically reduce the likelihood of XOM getting new offshore drilling rights.

Look at a map of the gulf where there are rigs. Notice ZERO around FL. Floridians were this close to allowing drilling. Good luck advocating drilling off FL anytime in the next 10+ years. FL is not happy with other gulf states right now, and that will prove to be very contentious.

Ed Cone

"Effective regulation is the key..." says JC.

But Hardister says, "There is also an excessive amount of governmental regulations that stand in the way of economic growth."

Hardister also says, "I hold firm to the belief that government is the cause of our problems, not the solution to our problems."

But government should be protecting corporations from the costs of their own actions, and socializing the risks of big business?

Seems inconsistent to me.

Roch101

It is inconsistent. Jon has the advantage of being a relatively young guy whose thinking has not yet atrophied into the "hyper-symmetry" Jay Rosen speaks of. Yet, he seems to default to the party dogma when the issues get tough. I wish he wouldn't. He'd to better to think things through on his own.

Jon has a contradiction here, as Ed deftly notes. As Ayn Rand wrote: "Contradictions do not exist. Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong."

Jon should think about that rather than retreating to the safety of the party-approved talking points.

Stephen

I may be confused but...

"total of liability . . . with respect to each incident shall not exceed for an offshore facility except a deepwater port, the total of all removal costs plus $75,000,000." That $75 million is chicken feed. Fortunately, the law removes that cap if the incident was caused by "the gross negligence or willful misconduct" of any party, or its failure to comply with any "applicable Federal safety, construction, or operating regulation."

Once the removal cost is defined, a company's liability is limited to removal cost + $75 million UNLESS gross negligence or willful misconduct in which case there is no cap.

Spag

"But government should be protecting corporations from the costs of their own actions, and socializing the risks of big business?"

I don't think Hardister said that at all. Jon isn't advocating zero sum, but you (Ed) seem to be.

Jon Hardister

Be sure to check out my latest blog entry on this subject...

http://jonhardister.blogspot.com/2010/06/careful-thought-and-consideration.html

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