The BP and MMS Spill: More of the Story Begins to Emerge

Sometimes, amid the yaking and incessant moralization, a fact or two will emerge that is big with meaning. From today’s Wall Street Journal:

BP has come under heavy fire from Congress and environmental groups for its lack of readiness to handle a worst-case spill. But that criticism has overlooked a key fact: BP was required by federal regulators to base its preparations on Interior Department models that were last updated in 2004.

The government models… assumed that most of the oil would rapidly evaporate or get broken up by waves or weather. In the weeks since the Deepwater Horizon caught fire and sank, real life has proven these models, prepared by the Interior Department’s Mineral Management Service, wrong.

The government’s optimistic forecasts reinforced the oil industry’s confidence in its spill-prevention technology, leading to decisions that left both oil companies and the government ill-prepared for the disaster that has unfolded in the Gulf since April 20.

Therefore, it should be clear that this Gulf oil spill is not simply the BP plc (BP) spill but it is the joint result of BP and the Interior Department’s Mineral Management Service’s actions or omissions.

This should also make us think about the relative feasibility of comprehensive regulation and a strict liabilty regime for dealing with this kind of problem. Richard Epstein discussed this recently in the Wall Street Journal.

We want to party with the greater knowledge about the situation to be incentivized to act upon it. The current system opens up all sorts of opportunities to ex ante cozy relationships between regulators and the regulated. Of course, every once in awhile, things don’t work out as expected.

About Mario Rizzo 75 Articles

Affiliation: New York University

Dr. Mario J. Rizzo is associate professor of economics and co-director of the Austrian Economics Program at New York University. He was also a fellow in law and economics at the University of Chicago and at Yale University.

Professor Rizzo's major fields of research has been law-and economics and ethics-and economics, as well as Austrian economics. He has been the director of at least fifteen major research conferences, the proceedings of which have often been published.

Professor Rizzo received his BA from Fordham University, and his MA and PhD from the University of Chicago.

Visit: Mario Rizzo's Page

Be the first to comment

Leave a Reply

Your email address will not be published.