Market Incentives for Safety

Abstract

In the heated atmosphere generated by inch-high headlines and multimillion-dollar liability suits, two important facts often get lost. First, society's awareness of what ensuring reasonably complete safety would cost rarely matches the intensity of its demands for such assurance. And second, the most powerful forces working to make products and workplaces safer are not the edicts of government but the dynamics of the market. True, there are situations in which the market cannot by itself create effective incentives for safety, but in the vast majority of cases it can-and does. Drawing on his extensive research into the regulation of risk, the author both describes the nature and extent of those incentives and offers guidelines for identifying the kinds of situation in which they are not likely to operate. For these instances, where federal regulation is essential, the author strongly recommends modes of government involvement that try to duplicate or extend the market mechanism.