Safety at What Price?

Overall exposure to risk can be controlled through choices in the market which reveal the implicit personal prices for safety. Externalities and imperfect information may result in unacceptable risks. Policies to regulate safety adopt a static welfare model in which a regulation is presumably welfar...

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Bibliographic Details
Published in:The American economic review 1995-05, Vol.85 (2), p.67-71
Main Author: Oi, Walter Y.
Format: Article
Language:English
Subjects:
Automobiles
Cost estimates
Death
Economic Analysis of the Regulation of Safety and Health
Economic models
Economic theory
Economic value
Expected utility
Financial risk
Marginal utility
Physical trauma
Regulation
Risk
Risk management
Safety
Supply
Utility rates
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Summary:Overall exposure to risk can be controlled through choices in the market which reveal the implicit personal prices for safety. Externalities and imperfect information may result in unacceptable risks. Policies to regulate safety adopt a static welfare model in which a regulation is presumably welfare-improving if the cost per expected life saved is less than the value of life. This model ignores the fact that risk-taking involves a choice over time. The sum of expected utilities has to be discounted at the rate of time preference of risk-takers. The existence of an optimal level of safety has to be rejected and replaced by a Schumpeterian model which can deal with a changing mix of risks over time, a point that was made by Aaron Wildavsky (1988). A competitive market achieves efficiency by establishing wage premiums for riskier jobs and higher prices for safer products. Violation of the assumptions of this ideal model could result in the allocation of too few resources to safety. Regulation can allegedly bring society closer to an optimum when the cost per expected life saved is less than the value of life.
ISSN:0002-8282
1944-7981