Friday, April 15, 2011
Who Wants to be a Spillionaire?
For a variety of reasons (public relations, political pressure) BP approached the problem of damages along the Gulf Coast in a proactive way, that is, agreeing up front to pay damages through what were largely political rather than judicial processes. The investigative journalism group ProPublica has looked at the result, and it's not pretty. In fact, that title phrase "spillionaires" says a lot. It's the classic case a lot of money to be had through what are essentially political connections rather through competition in the market (or, in this case, rather than through a more measured, but slower, common law process). It's also a case study as to why economics students need to be repeatedly made aware of the "public choice" aspects of non-market decision making. Oftentimes, "market failures" are compared to some idealized non-market utopia. But nothing is going to cause human beings to discard the same human weaknesses that cause problems in the market just because they switch to some alternative resource allocation process, especially when there is so much money at stake, as in this case.