BP Spill: Ripples

Trying to quantify the intangible

Marketplace Staff Aug 19, 2010
BP Spill: Ripples

Trying to quantify the intangible

Marketplace Staff Aug 19, 2010


Tess Vigeland: Today, the man in charge of overseeing the response to the BP oil spill said the well should be finally and permanently capped early next month. Meanwhile, BP says it will make good on promises to compensate Gulf residents and workers who suffered financially because of the spill. One question for the courts that will be battled out in the courts is just who has suffered. You may be surprised to learn how far the definition of suffering can be taken. For example, were you nauseated by photos of oil-smothered birds?

Krissy Clark has our story.

Krissy Clark: First, of course, there are the people whose damages are all too obvious. In places like Coden Bayou, along Alabama’s Gulf coast, the hurt from the spill is painfully clear.

Ask Lisa Harbin. She was the manager of a bait and tackle shop here, until it shut down earlier this summer.

Sound of water splashing

Lisa Harbin: We’re actually on a dock right now that we had just built for our customers to be able to come back and purchase more bait if needed. And, now we’re just standing on an empty dock.

No boats, no customers, no fishing since the oil started gushing. And even now, as fishing grounds reopen, people are spooked, worried local species are tainted.

Harbin: We’re just hoping to get open back up, and hopefully, people will start fishing again.

Harbin, and thousands of other Gulf residents, have filed claims with BP over these losses. They want compensation for the fish they haven’t been able to sell, or eat, or catch and release. That is, what they haven’t been able to use, what economists call “diminished use value.”

But that’s not where the damages of the oil spill end.

Auctioneer: Do I hear $220? $220…

Far away from the Gulf, people have also suffered damages, in places like this bar in Los Angeles. Folks held a charity auction here recently, to raise money to clean up the oil spill.

Auctioneer: You can buy some Dove to clean a pelican! $240 right there! Alright! $240.

Now, unlike the manager of that bait shop, the people in this bar don’t rely on income from Gulf wildlife. But, as Harvard economist Robert Stavins says…

Robert Stavins: That surely doesn’t mean that people don’t derive value from the existence of those animals.

And that’s what economists call “non-use value.” It’s the idea that some people just feel better knowing that nature’s doing OK. They put a value in that. And when it’s not?

Sam Reder: I mean, I literally ache behind my knees when I think about the pain and suffering and death of so many sea creatures and the tragedy.

That’s Sam Reder. I caught up with her as she was heading into the auction. A reaction like hers to the oil spill isn’t uncommon. So the next question is, should BP compensate Sam Reder, and folks like her? That’s what I asked Nick Flores, an economist at the University of Colorado.

Nick Flores: It does sound kind of patently ridiculous, but at the same time, I would say she’s worse off than had it not happened. There’s real harm there.

And, by U.S. law, that harm should be compensated. People don’t get the money. State and federal governments do. The question is, how much?

Flores was on a team that helped figure that out, after the Exxon Valdez oil spill. They carefully crafted surveys to measure how much money the average American lost, knowing a bay in Alaska had been trashed. The next step?

Flores: Basically, show up at people’s doors and do in-person interviews with them.

The result? $31 per U.S. household, or almost $3 billion in total. It was part of the settlement that Exxon eventually paid.

Of course, some people think it’s crazy to price what seems priceless — like MIT economist Jerry Hausman. He worked for Exxon after the Valdez spill. He says, when you ask random people to quantify the value of a pristine place like Prince William Sound…

Jerry Hausman: Most of those people have never thought about Prince William Sound for 20 seconds in their life. It’s extraordinarily hypothetical, people don’t have experience, and therefore, you can’t measure it.

Stavins: If something is not quantified, it is simply ignored.

Robert Stavins the economist at Harvard says even if the calculations aren’t perfect, they’re worth trying.

Stavins: If you don’t put a price tag on it, then society judges it to be valued at zero.

At the Coden Bayou bait shop, Lisa Harbin is finishing up inventory on her tangible losses, including a freezer full of unusable bait. But then, her mind wanders to the intangibles.

Harbin: You know, I’ve seen the oil, floating on the tide lines. When you’ve grown up on these waters your entire life, it’s heart breakin’. I cried.

The government is already assembling a new team of economists to figure out just how much those tears or anyone’s are worth.

I’m Krissy Clark for Marketplace.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.