The Liability Cap Caused the Gulf Spill

[Donnachaidh]

http://www.theatlantic.com/business/archive/2010/06/the-liability-cap-caused-the-gulf-spill/58278/

arely has a bipartisan rallying cry been shouted in such starling unison as, "Make BP pay!" Many reasons have been discussed why the liability cap should be lifted. One, however, hasn't received any attention: the cap caused the spill in the first place.

Moral Hazard Strikes Again

If a liability cap had never been put in place, BP and other oil companies would have behaved differently. Since they thought their liability was limited, oil companies participated in a relatively small insurance fund to cover potential damages. This is where the problem began.

Without a net to catch the oil companies if they fell, BP probably would have been more careful. Cheap insurance creates a moral hazard, where you are lulled into believing that your risks are fully covered at a low price. Spending money on additional safety measures becomes a bad business proposition; after all, insurance has you covered.

Indeed, not only does this moral hazard result in behaving less prudently, but it also provides little incentive to put plans in place to respond to disasters. Why bother? No matter how bad the spill gets, you'll only be responsible up to the government cap, which will be covered by your insurance.


More at the link --

[Poll_Blind]

1. As someone here put it a few days ago- the heart of this matter is deregulation and...

...the "all gain, little pain" which led them to make absolutely idiotic decisions.

PB

[Oregone]

4. The heart of this matter is an economic system that created conditions leading to deregulation

Maybe CEOs should work on behalf of workers, protecting their long term interests, rather uninvolved shareholders. Maybe they wouldn't then be concerned with endangering such workers with stripped down regulation in order to benefit a small group of old money elitists.

Capitalism all but ensures these amoral companies perform activities mankind perceives as immoral to produce more profits.

[WCGreen]

2. Exactly...

If we are motivated by profit, as the right loves to proclaim, then, therefor, there must be motivation to limit potential liability from an unlimited cap...

[TexasObserver]

3. recommend

[snot]

5. Actually,

there's another liability cap I think we should question. All corporate executives are shielded from personal liability for most of their actions within the scope of their employment with the corporation. So even if BP pays, most salaries and bonuses already paid to the executives, even while wrongs were being committed, can't be recovered.

[notesdev]

6. BP self-insures

when you're big enough you can do that and it makes economic sense

I'd wager you're right on the liability cap, though - it does encourage taking risky actions for any operation that might exceed the cap costs if done properly.

[jwirr]

7. It certainly added to it. When there are no consequences for your

actions then you do not have to control you behavior. They were allowed to place a price on the risk they took and think there would be no other problems. It is not just BP because all their emergency plans are the same. BP just happens to be the one who will pay for it because their risk did not pay off.

[Laelth]

8. Absolutely true. The cap wasn't the only cause, but it was a significant cause. n/t

:dem:

-Laelth