BrianGarst.com

When big accidents like the BP oil spill occur, there is predictably a call for “more regulation” as a solution.  “If only government had required more robust/redundant safety mechanisms!”  This reasoning is easy, but also sloppy.

Government safety regulations are capable of being harmful as well as helpful.  Once regulators set safety standards, for instance, they are less likely or capable of keeping up with the latest and newest measures as time goes by compared to industry.  Moreover, meeting government regulations provides businesses an easy excuse for not having done more if something goes wrong.

In my last post on the spill I identified other government policies that might have contributed to the situation, such as the cap on liability a company faces for a spill.  And now Jonathan Finegold Catalán of Economic Thought has articulated the economic argument much better than I am capable.

The White House, meanwhile, is proposing to raise the liability cap, along with a host of other measures, in response to the spill.  Some of the other proposals look dubious, but I think raising the liability cap is a positive policy response.

economic theory