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Ex Ante Liability Rules in New Zealand's Health and Safety in Employment Act: A Law and Economics Analysis

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Abstract

In addition to penalties imposed for breaches of statutory duties in the event of workplace accidents involving physical harms, New Zealand's Health and Safety in Employment Act 1992 also provides for penalties where accidents have not occurred. Ordinary negligence rules are ex post in that both an accident and harm must occur before liability accrues, whereas ex ante liability rules create liability for deficient care per se. This paper examines whether liability for breaches of duty that do not give rise to accidents have a useful incentive-enhancing role for health and safety decisions by employers in the New Zealand context when used in conjunction with ex post liability rules. We argue that ex post rules by themselves are insufficient to induce appropriate levels of precaution due to the combined presence of weak penalties and considerable uncertainty surrounding the Courts' required standard of care. Merely augmenting ex post liability with ex ante liability, however, is unlikely to induce desirable levels of employer precautions. Further, more strict ex ante standards than socially optimal precaution levels may be desirable since inspection probabilities, prosecution rates, and penalties for breaches of ex ante standards are relatively low, providing some justification for the relatively stringent safety regulations and required standard of care observed in New Zealand. Nevetheless, a weaker but less uncertain standard may instead induce a small degree of overprecaution, removing the need for ex ante regulations from this particular perspective.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/0602.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 06/02.

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Length: 38 pages
Date of creation: 01 Jun 2006
Date of revision:
Handle: RePEc:cbt:econwp:06/02

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Keywords: ex ante and ex post liability; safety incentives; health and safety standards; uncertainty;

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  1. Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September.
  2. Paul Gordon & Alan E. Woodfield, 2006. "Incentives and the Changing Structure of Penalties in New Zealand's Health and Safety in Employment Act," Working Papers in Economics 06/03, University of Canterbury, Department of Economics and Finance.
  3. Craswell, Richard & Calfee, John E, 1986. "Deterrence and Uncertain Legal Standards," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 279-303, Fall.
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Cited by:
  1. Andrea Menclova & Alan Woodfield, 2013. "The Composition of Health and Safety in Employment Sentences in New Zealand: An Empirical Analysis," Working Papers in Economics 13/13, University of Canterbury, Department of Economics and Finance.
  2. Paul Gordon & Alan E. Woodfield, 2006. "Incentives and the Changing Structure of Penalties in New Zealand's Health and Safety in Employment Act," Working Papers in Economics 06/03, University of Canterbury, Department of Economics and Finance.

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