Moral hazard: When preventative measures against risk cause more of the risky behavior the preventative measures are designed to reduce. Examples: Government subsidized flood insurance creates incentives to live in flood prone areas; or, mandatory seatbelt laws may increase automobile accidents; or,
BP faces billions of dollars in fines for last year's spill, and 80 percent of that money should be spent restoring the areas affected by the disaster. That's fair. It's also in the best interest of our nation's economy, food supply and security...
Yet senators from other states have filed disparate proposals that seek to grab most of the funds for other, non-environmental uses or that propose rigged formulas for distributing the money.A bill by Sen. Ben Nelson of Florida, for example, would distribute some of the fines based on a state population and the length of its shoreline
via www.nola.com
Compensation based on population will create incentives to increase state populations in disaster prone areas. Compensation proportional to damages will possibly create incentives for people to inefficiently locate in disaster prone areas.
