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contingent valuation

A Social CBA on the BP Spill

Adam Rust's picture

Posted June 15, 2010

Most efforts to monetize the costs to taxpayers from the Deepwater Horizon oil spill in the Gulf suffer from one big problem. They do not have a means to account for people that do not have a financial stake in the health of the Gulf of Mexico.

It seems easy to agree that Gulf Coast fishermen and fish house restauranteurs would experience a loss as the result of BP's folly. Their livelihoods have been destroyed, or at least harmed, by this disaster. Once the days of skimming oil off of the surface have passed, things will get really bad. It seems possible that it could be years, or even decades, before fisherman can genuinely make a good living in Louisiana or Alabama.

The protagonist of this nightmare is clear. BP is on the hook for a lot of damages. It wouldn't surprise me if Transocean and Halliburton experience some hurt, too. But, for how much?

My thought is that there are a lot of people that still care about the Gulf Coast, even though they don't work there or own property there. Those include people that are fairly well affected, such as anyone that operates a business that is indirectly dependent for their revenue from demand created by wages made in the Gulf. That would include ice cream salesman in Houma, or mall operators in Gulf Shores. It could include municipalities in the Gulf area. It could include turf grass installers in Pensacola. All of those groups are likely to experience some downside because of the Gulf spill.  There will be less demand for new turf grass if there are fewer vacationers seeking to play golf in the area, and there will probably be fewer families taking their earnings to see a movie at the Houma mall.

Those are people with indirect financial losses.

Then, there are another group that stands to lose, even though they can't quantify those losses in dollars.

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