Negative Externalities and Environmental Regulation: An Application of the Principal-Agent Model
Date of Award
Bachelor of Arts
This thesis considers optimal enforcement strategies in the context of principal-agent relationships for industries where there is a high risk of negative externalities. The 2010 Deepwater Horizon oil spill—the largest accidental spill of all time—is used as a case study to highlight the regulatory issues that can arise in industries that can have far-reaching and negative impacts on society. An in-depth analysis of the events surrounding the disaster makes it clear that complex principal-agent relationships between agencies and firms are common in the industry, as are problems with conflicting objectives, improper incentives, and moral hazard. As these are all features of the principal-agent model, this economic analysis tool is used to provide insights for resolving issues and proposing a new optimal enforcement strategy for the industry. As many features of the offshore drilling industry are common in other industries with high risk for negative externalities, the recommendations in this thesis can be applied generally to these other industries as well.
Hickox, Emily, "Negative Externalities and Environmental Regulation: An Application of the Principal-Agent Model". Senior Theses, Trinity College, Hartford, CT 2014.
Trinity College Digital Repository, https://digitalrepository.trincoll.edu/theses/361
Senior thesis completed at Trinity College for the degree of Bachelor of Arts in Economics.