Richard Epstein Makes Sense
At least before he tears into environmentalists.
Epstein, Richard A. 2010. “BP Doesn’t Deserve a Liability Cap: The best way to deter future spills is to expose drillers to the full costs of any mistake and not let any company without proper insurance near an oil derrick.” Wall Street Journal (16 June).
“What’s needed going forward is a comprehensive legal strategy that addresses the risks though a combination of regulation before the fact and tort liability (and criminal sanctions where appropriate) afterwards. Tort remedies are essential to protect people (and their property) who do not have contractual relations with defendants from harms such as air and water pollution. The legal system should never allow self-interested parties to keep for themselves all the gains from dangerous activities that unilaterally impose losses on others — which is why the most devout defender of laissez-faire must insist, not just concede, that tough medicine is needed in these cases. The fundamental question here is one of technique: What mix of before and after sanctions will do the job at the lowest cost?”
“The first element in the mix is a no-nonsense liability system that fastens full responsibility on the parties who run dangerous operations, no excuses allowed. Accordingly, we have to be especially wary of statutory caps on tort damages.”
“A tough liability system does more than provide compensation for serious harms after the fact. It also sorts out the wheat from the chaff — so that in this case companies with weak safety profiles don’t get within a mile of an oil derrick. Solid insurance underwriting is likely to do a better job in pricing risk than any program of direct government oversight. Only strong players, highly incentivized and fully bonded, need apply for a permit to operate. This logic also suggests that the Price Anderson Act’s $375 million cap on damages for each responsible party to cover incidents at a nuclear power facilities should be rethought.