More Than a Wing and a Prayer: Government Indemnification of the Commercial Space Launch Industry

Timothy Brennan, Carolyn Kousky and Molly Macauley

No 09-112, UMBC Economics Department Working Papers from UMBC Department of Economics

Abstract: Using rockets to launch communications satellites and other spacecraft poses risks to the uninvolved public, including persons and property under the flight path of the launch vehicle. The federal government plays a pivotal technical role during the actual launch by carrying out certain risk-related procedures, thus causing third-party risk to be jointly produced by the company and the government. In addition, under the Commercial Space Launch Act, the government partially indemnifies commercial launch companies for third-party damages. We compare the indemnification policy to optimal liability rules under public-private co-production of risk. Under modest assumptions, shared liability created by the indemnification rules decreases the incentive of both parties to take care relative to the optimum. If care were observable, it would be preferable for the government to fully indemnify companies that take due care. The role of the government as an agent for third parties may qualify these findings.

Keywords: government indemnification; liability; insurance; space transportation (search for similar items in EconPapers)
JEL-codes: L51 L98 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-09-01, Revised 2009-09-01
New Economics Papers: this item is included in nep-ias
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Working Paper: More Than a Wing and a Prayer: Government Indemnification of the Commercial Space Launch Industry (2009)
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