June 16, 2010
Epstein on BP in the Wall Street Journal
Richard Epstein (Chicago, NYU) has an op ed in the Wall Street Journal calling for a strict liability regime for the BP incident. Here is a nice quote from the op ed:
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?
He goes on to explain that "Solid insurance underwriting is likely to do a better job in pricing risk than any program of direct government oversight." That is an interesting point. It raises important questions of how underwriting is actually done, what the quality of the risk assessment is, and how it can be improved-- see Tom Baker & Sean Griffiths work on D&O insurance for examples of the kind of studies that ought to be done. They find reason for hope in D&O insurance underwriting. It also begs the question of what background rules create the situation where such underwriting is necessary and what incentives are in place to avoid errors.h/t Nate Oman, concurring opinions
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