Can we, from an economic viewpoint, say anything useful about the implosion of OceanGate’s submersible, and the death of its four passengers as well as of its pilot, the founder and CEO of the company? My co-blogger David Henderson beat me to that topic, but here are a few other, complementary ideas that I had started putting on electrons.
A first, basic, point relates to consumer choice and sovereignty. Four adult consumers paid money (rumored to be $250,000 each) to participate in the unique adventure of seeing the wreckage of the Titanic two miles deep in the North Atlantic. The adventurous passengers certainly knew the risk, as the Wall Street Journal notes (“Prior Submersible Passengers Recount Thrilling Experience: ‘Pretty Extreme’,” June 21, 2023):
Past travelers who climbed into the minivan-sized tube that is the Titan deep-sea submersible knew they might die.Risk of death is mentioned at least three times on a waiver they signed before boarding.
The passengers still decided to buy the service because each judged its expected cost, including risk, to be lower than the expected subjective benefit of the adventure. When a market demand exists, supply follows. No entrepreneur would mobilize resources to create the sort of service that OceanGate offered if he didn’t think he would have paying customers. “Consumer sovereignty” means that consumers decide through their demand where scarce resources are allocated.
The second idea is related to the eclectic way in which most economists look at the non-economic concept of “human nature.” Human nature is seen as the way biological and social evolution influence individual preferences (see notably Friedrich Hayek on this topic). In the human species, “nature” leaves much room for diversity in individual preferences, as advanced societies demonstrate. Not all individuals would pay to dive in the ocean imprisoned in a metal tube. But there are more adventurous individuals who love that. Wherever individual preferences come from, in their commonality and they diversity, they motivate action, and economics takes it from there to analyze society.
A third idea lies in the benefits of a free and rich society, the second feature flowing from the first. It is only in a free and rich society that it is possible for ordinary individuals—not just great rulers and great criminals—to live great adventures according to the preferences, and of course the constraints, of each. There is no OceanGate company in North Korea nor, for that matter, in Russia or China, even if some of their institutions sometimes partly succeed in simulating freedom by simple imitation. This applies equally to lots of smaller adventures that are accessible to individuals with private cars, boats, trailers, cabins in the woods, and guns for self-defense if needed. Even the prices of more involved adventures in space or undersea should, ceteris paribus, decrease with time and entrepreneurship.
A fourth idea, which cannot but pop up under our Nanny State, in our society which is a mix of liberty and government control, is whether adventure and risk are sufficiently regulated. A Wall Street Journal story notes (“Rescuers Follow Banging Noises in Search for Missing Titanic Submersible,” June 21, 2023):
The vessel is owned and operated by a little-known company called OceanGate Expeditions, whose founder and chief executive is on board, and has put a spotlight on a niche and generally unregulated part of the tourism industry, typically for wealthy people. …
Submersibles operate outside the boundaries that regulate other vessels, said Salvatore Mercogliano, who teaches maritime-industry policy at Campbell University in North Carolina. The irony, he said, is that the sinking of the Titanic inspired laws that governed maritime law, including requiring certain safety procedures and distress signal requirements.
Many calls for regulation have been heard.
If we accept normative values consistent with the economic way of thinking, not only the rich should be entitled to make their own choices and take their chances. More regulation of adventurous and risky activities would, on the one hand, increase their costs. On the other hand, by reducing risk, regulation would also increase demand from less adventurous segments of the market. The effect of a reduced supply (because of higher production costs) and increased demand is a higher price. If supply diminishes more than demand increases, regulation could reduce access to adventure.
We should be suspicious of government imposing anything over very basic safety measures, which should anyway be largely in the interest of the suppliers to adopt. Indeed, testing of new products is often voluntarily contracted to third-party laboratories, but the process may have been bypassed by OceanGate when it changed the material used for the hull of its submersible. (See notably “Submersible Passengers Died in Implosion,” Wall Street Journal, June 22, 2019.) On the other hand, it’s pretty clear that the entrepreneur at the origin of the tours to the Titanic wreckage literally had skin in the game: he was on board when the submersible sank.
Voluntary safety rules sometimes fail, especially in the case of new and extreme adventures. But so do coercive government regulations in ordinary cases. It should be sufficient that candidates for extreme adventures be informed of whether or not the safety measures recommended by the government or by private verification laboratories were or were not implemented. Avoiding new coercive regulations is even more clearly desirable in a general situation where, as nowadays, regulation is already pervasive after increasing non-stop for several decades. And as pointed out by David, new products, services, or activities, which “the legislator” has not even thought of, are of necessity unregulated.
Moreover, as much as adventures such as submersible expeditions could be regulated, they will never be perfectly safe. For adventurous individuals, less risky adventures would be less attractive. The Peltzman effect suggests that risk-seekers and extreme adventurers would move to non-regulated or less-regulatable risks, which may include crimes. As Francis Fukuyama argued, bored people can be dangerous. And, of course, the goal of regulating all risks of life entails reducing many of its pleasures.
A last point is the argument that taxpayers, many of whom are not themselves risk-seekers, should not be on the hook for rescuing adventurers and participants in risky activities, who should make their own insurance arrangements. This ideal should certainly be encouraged or not discouraged, but with the understanding that it can never work perfectly for a reason of moral hazard that is inseparable from a rich society with governmental institutions: everybody knows that risk-seekers and adventurers will be rescued by public agencies if they haven’t purchased insurance. It also appears that many private or semi-private organizations helped the rescue effort for the OceanGate submersible. A more challenging idea comes from a contractarian perspective à la Buchanan-Tullock, but is not incompatible with private rescue contributions: it may be that all individuals in society agree on rules establishing public rescue services in emergency situations, a sort of public insurance.
READER COMMENTS
Craig
Jun 23 2023 at 1:24pm
“Risk of death”
Indeed there is a risk of death if you walk across 6th Avenue. BUT I did read one peculiar fact from this link https://www.insider.com/former-titan-passenger-sub-lost-communication-surface-ship-every-time-2023-6
“”I took four different dives with the company, one to the Titanic and three off of New York City, and communication was lost, at least briefly, every single time,” Reiss told CNN on Tuesday. “It just seems baked into the system. I don’t blame the submarine as much as I blame deep water, but you would always lose it and come back.”
Here’s the thing, that doesn’t sound right to me. It suggests a ship designed to handle the pressures has systems that apparently can’t handle it and then “”The debris field is consistent with a catastrophic implosion of the vessel,” and that seems to be a ‘thing that speaks for itself (res ipsa loquitur), but it could be the owner knew the vessel was in the process of failing?
Pierre Lemieux
Jun 23 2023 at 2:52pm
Craig: I don’t understand what you mean. The CEO (and, I understand, majority owner) knew the vessel was “in the process of failing” and he did what?
Craig
Jun 23 2023 at 3:15pm
The fact he shared the risk says something as well, Professor. There’s still the concept of ‘knew or should’ve known’ or potentially that he could have ‘disregarded’ the risk. While the cases aren’t altogether too common, the general fact pattern is seen in the cases where the a bungee cord snaps, a parachute rips maybe, a repetitive process subjecting something to wear and tear that may not be properly maintained and many times people do disregard that “Ahhhh, it’ll be fine, just stick some ‘duct tape’ on it”
Premature, but when I read that about the communications going out every time, that raised my eyebrow a little bit.
john hare
Jun 23 2023 at 5:36pm
I did a comment on Davids’ post that should just have been a link to yours. Thank you.
Pierre Lemieux
Jun 23 2023 at 10:59pm
John: I read it on David’s page, but I have no capacity to move or copy it here, if that is what you mean. But you may repeat here if you wish.
john hare
Jun 24 2023 at 6:30pm
My meaning was that you said it far better than I.
Pierre Lemieux
Jun 24 2023 at 8:15pm
Oh thanks, John.
Monte
Jun 23 2023 at 6:14pm
And which of us would insist that we not provide public assistance at tax-payer expense if it meant forfeiture of life?
That said, might adverse selection have been involved here? Did OG’s CEO fully disclose the risks associated with the vessel’s experimental and untested hull materials (Ti/carbon graphite) to the passengers? If not, that non-disclosure might be actionable in spite of any waivers signed.
Jim Glass
Jun 24 2023 at 1:38am
If not, that non-disclosure might be actionable in spite of any waivers signed.
Correct. Signing a waive saying, “I know that if I go for a walk with you I might die”, does not give you a license to kill me by either intent or negligence.
vince
Jun 25 2023 at 6:01pm
Very many of us, very frequently. The difference in this situation is that the victims were easy to identify.
Monte
Jun 25 2023 at 10:25pm
I suppose you’re right. In situations like this, familiarity sometimes doesn’t breed contempt. But given our current state of affairs (had the victims survived), many would have liked to see them prosecuted (or fined). In fact, many (sadly) believe their fate was deserved. We’re more at risk from our fellow man than we are in a submersible.
David Seltzer
Jun 23 2023 at 7:28pm
Pierre said “No entrepreneur would mobilize resources to create the sort of service that OceanGate offered if he didn’t think he would have paying customers. “Consumer sovereignty” means that consumers decide through their demand where scarce resources are allocated.” As an individual with a a preference for risk wherein I accept the possibility of injury or death I’ve pursued activities that have returned greater satisfaction simply because I survived. Those activities include climbing Mount Rainier. At 11,000 feet I failed to summit, 14,400 feet, because of altitude sickness. I’ve SCUBA dived the Red Sea and was approached by a bull shark. For the Rainier climb there at least four different tour providers. In Eilat, both sides of the border between Israel and Egypt, there were are at least five dive shops and several boat dive excursions. Those markets exist for any individual who desires their service. The cost to climb Mt Everest with guidance averages about 50k. By 2022, there were over 11,000 summit events. Each Individual has a risk avoidance coefficient. It’s not for some government functionary to determine mine or anyone else’s.
Jim Glass
Jun 24 2023 at 1:26am
Voluntary safety rules sometimes fail, especially in the case of new and extreme adventures.
Which does not describe this case. James Cameron has been down to the Titanic 33 times since his first visit in 1995. He also co-designed a sub he took to the bottom of the Mariana Trench, nearly three times deeper than where the Titanic rests, under hugely more sea pressure. Countless others have been down to the Titanic over the decades. No failures until now.
as much as adventures such as submersible expeditions could be regulated, they will never be perfectly safe.
Cameron says you can go down to the Titanic today and scoot around it in greater safety than when in your car on the Interstate. If the vessel you are in follows industry standards.
Now these industry standards – which have been so successful for such an extraordinary technology – developed free of regulation, so kudos for the free market there. But I am sure you agree even with a shyster like me that if well established industry safety standards are wantonly, even willfully ignored, with fatal consequences, lawsuits can and should follow to determine liability for fatal negligence (or worse).
As a professional shy^^, officer of the court, I well know not to prejudge a case by media reports. So the fact that OceanGates’s people bragged about defying industry standards because they stifle innovation, while they themselves followed the better lessons of NASA, is something I do not hold against them. Except, maybe, when I look for starters at the way the Titan’s crew and passengers had no way out of it without someone removing 18 bolts from outside — and what was NASA’s #1 all-time safety lesson learned from Apollo 1?
Also, I don’t hold it against them that they defied industry standards by refusing to hire professional ex-navy submariners as crew and staff, instead hiring recent school graduates, navy professionals being deemed “uninspiring”.
Here is such a 20-year veteran submariner reviewing the design and operation of the Titan…
https://www.youtube.com/watch?v=4dka29FSZac
Well … maybe they should have wanted one guy like him on staff giving some educated opinions?
But no, I don’t hold these things against them. As to a jury, though … I wouldn’t want to be defending this case.
Andrea Mays
Jun 24 2023 at 12:52pm
Pierre,
I often have the same thoughts about risks/rewards when I see people taking their lives into their own hands or—worse?—putting them into the hands of some person who earns minimum wage and is in charge of filling your scuba tank, folding your parachute, fastening your bungee harness or ensuring the door or the shark cage has been secured.
Relative risk matters— approximately one person per year does bungee jumping (I looked this up when someone who shares my DNA wanted to bungee jump off a bridge in the third world).
How many total submarine tourists have descended to those depths? And these are the first fatalities? I would include that in my calculation. (Your risk of being killed in a space shuttle was something like 1/50– non trivial!
That may be why I swim— (1/1,000,000 fatality rate) instead of BASE jumping (1/60).
cheers.
Mark Brady
Jun 24 2023 at 5:30pm
I recommend Tim Black’s article “The grim exploitation of the Titan sub tragedy: Those saying the media only care about it because it involved rich white guys are cynical ghouls.”
https://www.spiked-online.com/2023/06/23/the-grim-exploitation-of-the-titan-sub-tragedy/
Pierre Lemieux
Jun 24 2023 at 8:14pm
Thanks, Mark. An interesting column.
Taylor Glover
Jun 25 2023 at 10:20pm
On the point about privatized rescue insurance, one point that I don’t usually see is the possibility of de facto regulation by private insurance. Basically, a company such as OceanGate requests a quote from an insurer and includes that price in the tickets they sell. If the company follows industry standards regarding building materials, maintenance, etc., then the risk can reasonably be assumed to be close the industry standard and the company will receive a competitively priced quote. If the company disregards industry standards, then the insurer will have to put much more effort into calculating their quote and they will pass those calculation costs onto the company. This will have the effect of not only preventing moral hazard where people take enormous risks with the expectation that the government will save them, but also push companies toward industry standard safety procedures to begin with.
There may still be a role for government to mandate that affected companies must inform their customers about the insurer’s report about the safety of the company’s practices.
Pierre Lemieux
Jun 28 2023 at 12:58pm
Good point, Taylor.
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