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The Law and Economics of the Environment

Edited by Anthony Heyes

This outstanding book focuses on how economics can contribute to the design, implementation and appraisal of legal systems that create the ‘right’ incentives for environmental protection. The sixteen original and specially commissioned contributions – written by some of the leading names in their field – span many of the important areas of contemporary interest and employ case study material combined with theoretical, empirical and experimental research.
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Chapter 16: Protest, property rights and hazardous waste: a reassessment

David J. Chapman and W. Michael Hanemann


15. Environmental damages in court: the American Trader case David J. Chapman and W. Michael Hanemann1 INTRODUCTION On 7 February 1990 the steam tanker American Trader spilled 416 598 gallons of crude oil approximately one and one-half miles off the coast of Huntington Beach, California. Almost eight years later, a ten-week trial in an Orange County state court came to an end on 8 December 1997 with a verdict for the plaintiffs in the amount of $18 million – the first jury verdict for natural resource damages ever delivered in the United States.2 Economics, and economists, played a central role in the trial, occupying four weeks of the trial testimony. This chapter describes the economic issues that were raised in the case and explains how they were treated, viewed from the plaintiffs’ perspective. Because the American Trader case went to trial, unlike almost every other suit for natural resource damages including the one following the Exxon Valdez oil spill, the arguments of both sides and the analyses of their expert witnesses have been fully aired in public, making it possible to discuss this case in some detail.3,4 The ‘polluter pays’ principle is meaningful only if one can establish satisfactorily how much that should be. That was the main focus of the American Trader trial.5 This case illustrates some of the issues that can arise in the course of implementing the liability approach to pollution control. More generally, it illustrates the issues that can arise when one applies economic analysis in...

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