Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?

This paper concerns the regulation of hazardous economic activities. Economists have generally viewed ex ante regulations (safety standards, Pigouvian fees) that regulate an activity before an accident occurs as substitutes for ex post policies (exposure to tort liability) for correcting externaliti...

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Bibliographic Details
Published in:The American economic review 1990-09, Vol.80 (4), p.888-901
Main Authors: Kolstad, Charles D., Ulen, Thomas S., Johnson, Gary V.
Format: Article
Language:English
Subjects:
Accidents
Cost efficiency
Economic models
Economic regulation
Economic theory
Economic uncertainty
Economics
Efficiency
Financial liabilities
Legal liability
Liability
Marginal costs
Negligence
Occupational safety
Public policy
Regulation
Regulations
Safety
Settlements & damages
Standards of care
State court decisions
Torts
Work place safety regulation
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Summary:This paper concerns the regulation of hazardous economic activities. Economists have generally viewed ex ante regulations (safety standards, Pigouvian fees) that regulate an activity before an accident occurs as substitutes for ex post policies (exposure to tort liability) for correcting externalities. This paper shows that where there is uncertainty, there are inefficiencies associated with the exclusive use of negligence liability and that ex ante regulation can correct the inefficiencies. In such a case it is efficient to set the safety standard below the level of precaution that would be called for if the standard were used alone.
ISSN:0002-8282
1944-7981