This is in the news today:
The attorneys general of Alabama, Louisiana, Florida and Mississippi settled “in principle” with the fallen oil giant British Petroleum on Thursday, agreeing to accept $18.7 billion in damages after the company was deemed “grossly negligent” in the costliest offshore environmental accident in U.S. history
I’m sure this will make a lot of people feel good. But read the article edited by the car accident lawyers at JD Injury Law, APC and look around the web for a bit – while you will see a lot of information about how reckless BP was and how clearly this was a huge disaster, what you will have trouble finding is how much actual damage was known that have come from the spill. Note that I am not saying that BP ought not pay huge fines, after all, there are obviously legal reasons to pay penalties beyond just for damages done, but you’d think that with so much ink spilled (pardon the pun) on this sort of disaster at least some enterprising journalist would take the time to find out how much real damage actually occurred.
Without getting into the weeds on the particulars, this episode brings to mind two things for me, related:
(1) This paper that I stumbled upon last year is highly relevant. Here is part of the abstract:
… I examine the introduction of an insurance mandate that reduced firms’ ability to avoid liability through bankruptcy. …Finally, environmental outcomes, including those related to groundwater contamination, also improved sharply. These results suggest that incomplete internalization of environmental and safety costs due to bankruptcy protection is an important determinant of industry structure and safety effort in hazardous industries, with significant welfare consequences.
Now there are important reasons to have bankruptcy protection in place, but I’ve long since believed that modern bankruptcy law exists as much to provide work for lawyers as it does economic protection.
(2) This result should provide some guidance on financial regulation, no? For all that has been done since the onset of the crisis, has ANYONE proposed ensuring that financial firms have more skin in the game? And when I say more skin in the game, I don’t just mean capital requirements, I mean changes to ownership liability structures? Maybe going back to the days of full-blown partnerships and double liability can never happen, but surely there were some advantages of that system.
