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Protecting Against Disaster with Contracts

Author

Listed:
  • Sato, Hideki

Abstract

Over the past 20 years, at least 267 people have been killed in one factory fire after another in the suburbs of Dhaka, Bangladesh. In a recent factory fire in Ashulia, there was no fire prevention management in place to protect human life. There are virtually no economic studies concerning accidents which could be prevented if fire prevention management were in place. This paper shows a simple way of preventing accidents, using a contract which represents both an incentive for factories and the costs to society. As fire prevention management is extremely costly for the factory, there may be an intuitive feeling that maybe a contract should not be set up, or that even if a contract is established, moral hazards may still arise. The results of this paper, counter this intuition. Furthermore, there is a rationale for implementing fire prevention management for the factory that has signed the contract.

Suggested Citation

  • Sato, Hideki, 2012. "Protecting Against Disaster with Contracts," MPRA Paper 45690, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:45690
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    File URL: https://mpra.ub.uni-muenchen.de/45690/1/MPRA_paper_45690.pdf
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    Citations

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    Cited by:

    1. Sato Hideki, 2015. "Preventing Factory Fires through Contracts: Case study of Garment Factories in Bangladesh," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 5(4), pages 9-13, April.
    2. Sato Hideki, 2015. "Preventing Factory Fires through Contracts: Case study of Garment Factories in Bangladesh," International Journal of Business and Social Research, LAR Center Press, vol. 5(4), pages 9-13, April.
    3. Sato, Hideki, 2014. "Cournot Competition and Reduction of Corruption to Prevent Garment Factory Fires in Bangladesh," MPRA Paper 56526, University Library of Munich, Germany, revised 09 Jun 2014.
    4. Sato, Hideki, 2015. "Preventing Factory Fires through Contracts: Case study of Garment Factories in Bangladesh," MPRA Paper 64023, University Library of Munich, Germany.

    More about this item

    Keywords

    Compliance; Contracts; Disaster prevention; Moral hazard; Whistle blowing;
    All these keywords.

    JEL classification:

    • D99 - Microeconomics - - Micro-Based Behavioral Economics - - - Other

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