On the Joint Use of Liability and Safety Regulation

Abstract

The efficiency of two different means of controlling hazardous economic activities, namely ex post liability for harm done and ex ante safety regulation, is re-examined. Some researchers have stressed that the complementary use of these two instruments can be socially advantageous. Here it is argued that the models which have been built in order to support this view crucially depend on the assumption that there are persistent enforcement errors. It is demonstrated that such a rather unsatisfactory assumption is not needed if wealth varies among injurers.