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That argument applies to any transaction that transfers money. The point is to give BP the proper incentives. There is some point at which the reward for drilli
by byrneseyeview 16y ago
That argument applies to any transaction that transfers money. The point is to give BP the proper incentives. There is some point at which the reward for drilling (cheap energy) is worth the risk of a disaster. By ensuring that they'll get sued for the monetary cost of the disaster, you can get the socially optimal level of drilling.
And if they'd been "regulated" by an insurer who promised to pay the cleanup costs of the once-a-decade spills, you can bet that these regulations would be to a higher standard.
- MichaelSalib 16y agoAnd if they'd been "regulated" by an insurer who promised to pay the cleanup costs of the once-a-decade spills, you can bet that these regulations would be to a higher standard. Given that a large insurance provider called AIG promised to pay massive clean up costs and utterly failed at regulating its clients, I think your theory is incorrect. At the very least, it is incomplete. Your theory needs to incorporate the fact that human organizations often behave irrationally, and even when motivated by appropriate incentives, they are prone to systemic reasoning errors. In addition, it needs to deal with the fact that a representative government cannot credibly refuse to promise to clean up messes of this sort, so an element of moral hazard will always remain.