A Model of Endogeneous Oil Spill Regulation

This paper presents a model of endogenous oil spill regulation where the severity of regulations is shown to be a function of the size of recent spills. The regulator chooses how much to regulate in order to maximize political capital when regulations are rigid downwards and the distribution of spills is not known with certainty. Very large spills are shown to cause large increases in the regulation level. In the event that an unlikely disastrous spill is realized, major regulatory reform may take place which would take the regulations to too high a level.