The Economics of Oil Spills

Abstract

Vessel oil spills are very serious natural hazards that have affected coasts worldwide for many decades. Although oil spills from tankers are highly publicized, very little is known about the role played by the incentives and regulatory instruments in place to prevent them. In order to shed some light on these issues, data were collected worldwide on large oil spills from multiple databases, starting in the 1970s, and merged with other socioeconomic records. A crucial concern is that that large oil spills have been undercompensated over time with respect to the damages caused. A meta-analysis was estimated in order to assess relevant factors affecting the damage claimed in oil spills and the compensations received by the affected parties. Meta-regression results show that the legislation applied (strict unlimited liability versus limited liability) played a crucial role in both the amount claimed and the final compensation received. Also, time-trend variables are shown as determining factors for both the damages and claims that are finally paid. To correct the large gap between damage claimed and compensation scenarios, it is recommended to strengthen compensation funds, while carrying out more comprehensive assessment studies which apply valuation methods comparable with those proposed by green capital initiatives for marine ecosystem services, and which could be used successfully during the litigation process.