Private companies launch satellites into space to facilitate television and phone communications, global navigation, environmental monitoring, and a variety of other land-based services. But when mishaps occur, and launch vehicles fall to the ground, the result can be damage to property as well as injury and death. The question of who indemnifies the risk of third-party harm is one that is of growing concern to those in the commercial space business.
In their paper, “More Than a Wing and a Prayer: Government Indemnification of the Commercial Space Launch Industry,” RFF researchers Tim Brennan, Carolyn Kousky, and Molly Macauley look at alternative risk-sharing formulas.
|Excerpts from the paper:
“Although the coproduction of the risk suggests that government should bear some of the costs, partial indemnification of the launch company could still lead to moral hazard. The launch company may take too little care before the launch in the production of the launch vehicle, since the government will be bearing some of the costs of an accident. On the other hand, failure to indemnify the company could lead to moral hazard in the reverse direction, where the government takes too little care during the launch or in setting safety regulations. Splitting the costs, as is currently done, also poses problems, in that the government may take too little care to avoid losses below the level at which it becomes liable. The government may also be too quick to abort launches, since it is not responsible for the private costs to the company of loss of a satellite from an abort.”
Molly Macauley Senior Fellow