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Hedging Strategies and the Financing of the 1992 International Oil Pollution Compensation Fund

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  • André SCHMITT
  • Sandrine SPAETER

Abstract

The maritime oil transport is regulated by the 1992 Civil Liability Convention for Oil Damage and the 1992 Oil Pollution Compensation Fund. In this compensation regime, contributions of oil firms are based on the aggregate risk of the Fund and are assessed each time an oil spill is registered. In this paper, we present the main characteristics of such a compensation regime and we explain why oil firms would benefit from a reorga- nization of the financing of the Fund by introducing appropriate hedging mechanisms. As standard insurance is shown to be too limited for the coverage of oil spills, we high- light the arguments that justify the introduction of financial hedging instruments in the management of the compensation system related to oil spills.

Suggested Citation

  • André SCHMITT & Sandrine SPAETER, 2005. "Hedging Strategies and the Financing of the 1992 International Oil Pollution Compensation Fund," Working Papers of BETA 2005-12, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2005-12
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    References listed on IDEAS

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    1. Epstein, Richard A, 1996. "Catastrophic Responses to Catastrophic Risks," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 287-308, May.
    2. Dan R. Anderson, 1998. "Development Of Environmental Liability Risk Management And Insurance In The United States: Lessons And Opportunities," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 2(1), pages 1-23, July.
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    5. André SCHMITT & Sandrine SPAETER, 2004. "Insurance and Financial Hedging of Oil Pollution Risks," Working Papers of BETA 2004-14, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    6. Ringleb, Al H & Wiggins, Steven N, 1990. "Liability and Large-Scale, Long-term Hazards," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 574-595, June.
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    8. Zeckhauser, Richard J, 1996. "The Economics of Catastrophes," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 113-140, May.
    9. André Schmitt & Sandrine Spaeter, 2004. "Insurance and Financial Hedging of Oil Pollution Risks," Working Papers of LaRGE Research Center 2004-05, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    10. Jin, Di & Kite-Powell, Hauke L., 1999. "On the optimal environmental liability limit for marine oil transport," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 35(2), pages 77-100, June.
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    Cited by:

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    4. Murat Yildizoglu & Nicolas Carayol & Pascale Roux, 2005. "Coordination Failures in Network Formation," Post-Print hal-00160385, HAL.
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    6. Tapas K. Mishra, 2006. "A Further Look into the Demography-based GDP Forecasting Method," Working Papers of BETA 2006-17, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    7. Dong, Bingying & Zhu, Ling & Li, Kevin & Luo, Meifeng, 2015. "Acceptance of the international compensation regime for tanker oil pollution – And its implications for China," Marine Policy, Elsevier, vol. 61(C), pages 179-186.

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    More about this item

    Keywords

    Oil spill; IOPC Fund; risk management; insurance; financial hedging.;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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