Incentives for Firms to Provide Safety: Regulatory Authority and Capital Market Reactions

Ivy E Broder and Morrall, John F,

Journal of Regulatory Economics, 1991, vol. 3, issue 4, 309-22

Abstract: The authors investigate the relationship between the various incentives that firms have to act safely, focusing on the relationship between the equity losses experienced by a firm following a fatal accident and the incentive effects created by government regulation. The major findings are that first, the capital market reactions vary dramatically by which agency has regulatory jurisdiction for the accident. And second, the capital market effects tend to be weak (equity values do not decline sizably) where federal agencies rely heavily on an "ex ante" inspection policy. On the other hand, where "ex ante" inspection policy is lax or nonexistent, capital market effects tend to be strong--up to an order of magnitude higher per fatality than willingness-to-pay estimates based on labor market data. Copyright 1991 by Kluwer Academic Publishers

Date: 1991
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