By Your Attendance, You Assume Some Risk

The area where law and economics overlap is intensely interesting to me. The common law represents centuries of wisdom, for example, about who is responsible for what, under which circumstances. The section of law about righting wrongs between unrelated parties is called Tort Law. A central principal in torts is the concept of negligence. We expect people to know certain things, to expect certain things, and to take some care not to hurt anyone.

But accidents happen. Despite the protective glass, hockey fans get hit by pucks. And sometimes oil platforms explode.

So we have to decide who was harmed by whom, and how much the injury is worth. Putting values on things is what economics tries to do.

I was reminded that fault is rarely the responsibility of any single party in this post by economist Steven Landsburg:

The shrimp boats that are sitting idle today are sitting idle partly because BP decided to drill in the gulf, but also partly because the shrimpers chose to operate in the vicinity of an oil rig. In this case, making BP feel the costs of its own decisions entails insulating the shrimpers from the costs of theirs.

The shrimpers knew there was some risk to their livelihood from the platforms that fueled their boats. They could have found some other way to earn a living. But they chose not to.

Yes, that sounds harsh. Certainly BP owns the vast majority of fault. But not all of it. And on that distinction millions or billions of dollars rest.

Landsburg continues:

In this particular case, I’m inclined to believe that it’s a good thing for BP to pony up. But contrary to what I’ve been reading around the web, there’s absolutely nothing in economic theory to dictate that conclusion; instead the conclusion depends on the particulars of the case. Is it cheaper to deal with the problem of spills by encouraging oil companies to be more responsible, or by encouraging others to stay out of their way? That’s an empirical question. Theory can’t answer it.

We don’t know if it would have made more sense to pay off the shrimpers to find another line of work decades ago, or if there will be less injury and loss in the way it must now play out. To the scientific aspect of economics, there is no “better”. There are only costs, benefits, and choices.