Industrial Organization Commons^™

Negative Externalities And Environmental Regulation: An Application Of The Principal-Agent Model, Emily Hickox

Senior Theses and Projects

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 …