Long term effects of the BP oil spill

              The 2010 BP oil spill has had long term effects on the marine organisms in the Gulf as well as on the fisherman that depend on the marine organisms for a living. Fishing in the area might never be the same and research is ongoing as to how long-lasting this oil spill will be on the marine life. The BP oil spill exerted negative externalities on the fishing industry and almost caused the shutdown of many businesses dependent on the marine life in the Gulf. BP is trying to internalize the externality by forced compensation of some $7.8 billion to tens of thousands of Gulf residents and businesses damaged by the spill. However, Ryan Lambert, one of many affected fishermen, is not satisfied with BP's offer to pay them off: “The settlement won’t do us any good if there aren’t any fish,” Lambert says.

            According to the Coase theorem, parties should be able to negotiate and reach an allocatively efficient outcome without government intervention. For this outcome to be possible, there must be a clear definition of all property rights as well as no transaction costs to bargaining. Unfortunately, neither of these are true in this case: the Gulf is a public good and thus property rights are not defined. Additionally, transaction costs are high because of the high number of people affected by the negative externality causing a holdout problem. Lambert contributes to the high transaction costs by not accepting BP's offer easily. Due to these problems, an allocatively efficient outcome is unlikely to be reached without government intervention. Further proving this point is the legal battle between BP and the Justice Department. According to the Times-Picayune: "If BP and the government can't agree on the company's gross negligence, that's a matter to be resolved at trial, not in hearings over BP's settlement with private parties. That's why the Justice Department's warning is not only appropriate, but welcome." The externality will hopefully be internalized once an agreement can be reached on the amount of liability BP must take responsibility for. In this particular case, the goods would be the marine organisms while the consumers would be the fishermen and residents of the Gulf.