APPLICATION OF CVM TO THE LOS ANGELES HARBOR SPILL

On 8 January 1991, 12,000 gallons of oil were spilled into the Los Angeles harbor (Stolberg, 1992, p. B8). Although the spill was relatively small compared to similar event in recent years, the busiest sea port in the United States was shut down for one day as a consequence. In addition to halting commercial port activities, the oil spill damaged "four oceangoing vessels, hundreds of pleasure boats, more than a dozen barges and commercial boats and as many as 200 sea birds had been tarred with thick, sticky fuel" (p. B8).

The cleanup cost $18 million, and resulted in the initiation of both criminal and civil legal actions against Pan Ocean Shipping Co., the Korean owner of the vessel from which the oil spilled, and Panobulk America, Inc., the Long Beach company representing Pan Ocean Shipping in the United States (Stolberg, p. B8). Subsequently, other parties were named as defendants in the legal actions related to the event (Cone, 1993, pp. A3, A29).

The United States Department of the Interior requires the use of economic surveys as a means of assessing the non-use values of environmental damage from oil spills and other sources (Dibona, 1992, pp. 50-54). The results of such surveys are used in the application of the contingency valuation method (CVM) to develop suggested liability levels for parties responsible for environmental damage (Brookshire & McKee, 1994, pp. 51-72). A CVM survey was conducte

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n two assumptions. First, the assumption is that externalities are harmful, and second, it is assumed that they are unidirectional (Coase, 1960, pp. 1-44). Coase (pp. 1-44) looked at economic externalities from a different perspective. Integral to this approach to externalities was the perception of a bi-directional character for externalities. As an example, assume that a paper pulp mill is spewing noxious fumes into a residential area. The conventional approach to externalities would posit that the mill created a harmful externality by causing it to be either unpleasant, unhealthy, or both for individuals to continue to live in the vicinity of the mill. Coase would agree that such an externality existed. He would extend the concept, however, and state that to either prevent the mill from operating or to penalize the mill for operating would impose a reverse externality on both the mill operators and those individuals and groups in society who wanted more paper pulp. The assumption of a bi-directional character of externalities led Coase (pp. 1-44) to declare that problems involving externalities must be looked at in total and not only in the margin. Coase's research led him to develop a theorem holding that under specif

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