Another prominent public policy issue of the moment is the explosion and subsequ
ID: 1130314 • Letter: A
Question
Another prominent public policy issue of the moment is the explosion and subsequent oil leak at the Deepwater Horizon well in the Gulf of Mexico. The issue provides an example to consider several important public policy issues from an economic perspective. Of note, on Monday, July 11 the federal government decided to issue a moratorium on new oil drilling in the Gulf.
Why did the government feel the need to intervene in this market (i.e. why does the private, unregulated market fail to function efficiently in this case)? Explain.
Besides regulation (such as the moratorium on the drilling) what are the two ways that the government can address the problem outlined above? Explain how both might help solve the problem.
Does the government always need to intervene to solve cases of the market failure outlined above? Explain.
Why did this case require government intervention? Explain.
Explanation / Answer
1. The govt needed to intervene because the private sector – the BP Company failed to do justice with respect to its environmental responsibilities. It should have taken safety measures that shouldn’t have led to the crisis in the first place. The reason why it failed to function efficiently was because it the environmental costs were BP’s own cost. Had these costs been a part of its own costs, then the market wouldn’t have failed.
2.
One way to address the problem would be make BP pay compensation for the wrongs done in the oil field. That compensation can go to those people whose livelihood had been lost due to the oil spill.
Another way would be to look to sell the entire oil field to BP while also retaining the rights of the flora and fauna.
3.
As long as the firms do not include the environmental costs as a part of their production process, the govt will need to intervene to minimize the loss due to environmental hazards.
4.
British Petroleum did not really do enough to contain the environmental hazards after the mishap happened. The loss due to BP’s indifferent attitude towards this environmental hazard was really huge. It led to loss of livelihood in the nearby areas and also the loss of flora and fauna. Also, such govt intervention sets the example for other players who would otherwise not care about negative externalities of their actions.