Estimating the Oil Spill’s Impact in the Gulf

In this past week’s SouthPoint, the Atlanta Fed’s regional economics blog, we discussed some of the economics behind the oil spill in the Gulf of Mexico. We were careful to note that determining the impact of the spill is impossible because there are simply too many variables at work: the amount of time before the leaks are capped, the direction of the wind, wave action, water currents, the amount of oil that reaches the coast, the effectiveness of dispersion efforts, the efficiency of clean-up efforts on shore, the amount of federal spending, etc. Measuring the cost of the spill is simply out of reach at the moment.

We can measure the number of jobs at risk, however. Across Florida, Louisiana, Alabama, Mississippi, and Texas—the states likely to be affected most directly—total employment in tourism-related industries and agriculture was about 2.6 million (in 2008), or about 14 percent of total employment in those states. However, if we narrow our scope to metropolitan statistical areas along the Gulf Coast of the most affected states, the numbers are much smaller—just under 132,500—with most being in the accommodation and food services industry.

At the Atlanta Fed, like most Reserve Banks, we not only monitor statistical data, but we also seek out anecdotal information from business contacts within the Southeast. We are hearing mixed reports on hotel cancellations, which could have a significant impact on not only employment in the region but also sales tax revenue. While there has been a flood of inquiries, cancellations are not widespread to date. But some areas are seeing an inflow of clean-up workers into their hotels. Although rather insignificant at this point, it does lead to a larger measurement issue. That is, it’s also impossible to measure the degree that clean-up and containment efforts will offset losses in other industries.

Econbrowser estimates the cost of the spill to British Petroleum (BP) by measuring the change in the company’s stock price:

“Stock prices give us a yardstick for the markets perception of a company’s long run profitability. When an event, such as this oil spill, impacts a company it will also impact its long run profitability. The divergence of the stock price from what we would have expected had the event never happened is a measure of the net present value of the cost incurred by the oil spill. Event study analysis gives us a framework to answer just this question.”

While the approach to determining the cost of the spill to BP is much more straightforward than guessing wind and sea currents, it doesn’t get to the more complicated endeavor of determining the cost to local communities. For that we will have to wait and see what happens next. Here are some useful links to help keep up with events:

The U.S. Department of the Interior’s Minerals Management Service, along with other agencies, has created a Web page dedicated to the Gulf of Mexico oil spill response that features regular updates, maps, and fact sheets. You can also register to receive e-mail notification of updates.

The National Oceanic and Atmospheric Administration is providing coordinated scientific weather and biological response services to federal, state, and local organizations.

A joint effort is under way from the Ocean Circulation Group and the Optical Oceanography Laboratory at the University of South Florida’s College of Marine Science to track and predict the Deepwater Horizon oil spill in the Gulf of Mexico.

The Wall Street Journal is also providing regular updates and coverage.

Finally, the Washington Post published a graphic of the spill and the affected areas of economic activity along the Gulf Coast.

About Michael Chriszt 1 Article

Affiliation: Federal Reserve Bank of Atlanta

Michael Chriszt is an assistant vice president with the Federal Reserve Bank of Atlanta's research department. He is responsible for the Regional Economic Information Network (REIN), which supports the Bank's monetary policy role.

Previously, Mr. Chriszt served from 2004 to 2008 as director of international and regional analysis with responsibility for analysis of economic conditions in the Sixth Federal Reserve District as well as international economic developments. Mr. Chriszt joined the Bank in 1989 and moved to the research department in 1990.

While at Miami University in Ohio, Mr. Chriszt received two bachelor's degrees, one in history and one in diplomacy and foreign affairs. There, he also earned a master's degree in political science with emphases on international economics and comparative politics. He has also received a certificate of study of the European Union. Mr. Chriszt is a graduate of executive education programs at Duke University's Fuqua School of Business and the University of Virginia's Darden Graduate School of Business Administration.

Mr. Chriszt is a member of the National Association of Business Economists and chair of the group's Regional Economics Roundtable. He is also a member of the board of executives of the Center for Paper Business and Industry Studies. A native of Cleveland, Ohio, Mr. Chriszt is married to Maxine and they have five children.

Visit: Michael Chriszt's Page

1 Comment on Estimating the Oil Spill’s Impact in the Gulf

  1. Isn’t it coincidence that the WORST environmental disaster in human history will affect “drill baby DRILL” Red States Texas, Louisiana, Mississippi, Alabama, Florida, Georgia and crazy South Carolina? Not to mention Tennessee and Kentucky getting hit with un-heard-of flooding.
    Georgia experiencing years of drought and Oklahoma multi-funnel tornados.

    (Lloyd the Baptist was right… Every Conservative wacko in America will be burning in HELL by 2012. see: post on

    Progressives have been WARNING you ignorant redneck Right-Wingers for decades but you HARDHEADS choose to listen to the corporate spokespersons like Limbaugh, Palin, Beck, Robertson, Hagee etc… HOW’S THAT WORKING FOR YA? (…and FOX News is owned by the Saudi Royals)


    It’s as though GOD himself has come down from heaven to rub Republican/Conservative noses in the evil BS they’ve spewed for the last few years. It seems like just yesterday that Sarah Palin and Glenn Beck worked their groupies into a cult frenzy with calls for off-shore oil DRILLING.

    IF Democrats/Progressives were degenerates like Republicans/Conservatives we’d probably come up with something vicious and cruel like “we don’t want our tax dollars used to save your Red State fishing or tourism industry”. But the LEFT-WING really DOES love the USA and wouldn’t kick our fellow citizens when they’re down like the right-wing mental deficient’s do.

    Get the government out of your lives, right? LET the Corporations have their way? THIS IS WHAT YOU GET! Profits over patriotism or the least bit of human dignity, social or environmental concerns. You think the multi-national corporations care about the American PEOPLE? Hell NO! Maybe you Conservative wackos didn’t notice but Corporations are the ones who moved all your good paying jobs to Communist China and caused the meltdown of our economy WITH THE HELP OF THE REPUBLICAN PARTY…

    I want to know something else… WHY is it that every other civilized nation on the planet, EXCEPT the USA, REQUIRES Oil drilling operations to have back up plans and top shelf shut off valves in case of emergency? I guess British Petroleum thought $500,000 was TOO MUCH for a workable shut off system. I know they LOBBIED in 2003 against the US government putting such REGULATION into place… (and I heard Cheney’s Halliburton is involved with this and other spills)
    NOTE: search Greg Palast
    Ohhhh and isn’t it telling the Times Square idiot bomber tried to make a hasty escape to Dubai? …Just like Dick Cheney’s Halliburton. A corporation who made a fortune from shoddy workmanship. Unlike the average American, corporations like Halliburton, Massey Energy and British Petroleum can get away with shoddy workmanship, mining explosions and oil spill disasters because the Republican Party (and some Blue Dog Democrats) are their paid for Ho’s…

    IT’S ACCOUNTABILITY TIME! If the PEOPLE don’t DEMAND IT now then you don’t deserve rights and freedoms the USA represents. Conservative wacko’s are always calling the French cowards but at least during the French Revolution the PEOPLE had the balls to make Aristocrats pay the price for their acts of evil.

    According to anti-gay activists George Rekers and James Dobson from the so-called Family Research Council… The Male Model/Escort industry has a great future in Republican Party politics… lol
    GOP – Gay Old Party

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