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Risky Production Processes and Demand for Preventive Safety Measures Under Uncertainty

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  • Carmela Di Mauro

    (Istituto di Scienze Economiche, Universita' di Catania, Via Orto del Re 30, 95124 Catania, Italy)

Abstract

This paper analyzes the behavior of a competitive risk-averse firm that has to choose the optimal level of labor and preventive safety measures. If the firm's injury function includes a random component, then the firm is characterized by a lower demand for labor and by a higher demand for safety measures with respect to a firm whose injury risk is completely under its control. The comparative statics show that shifts in the parameters of the risk distribution will have effects that depend on the absolute risk-aversion functions. The introduction of safety standards will prompt a reduction in the demand for labor while a tightening of the compensation system will have ambiguous effects on the demand for the two inputs. The Geneva Papers on Risk and Insurance Theory (1994) 19, 35–51. doi:10.1007/BF01112013

Suggested Citation

  • Carmela Di Mauro, 1994. "Risky Production Processes and Demand for Preventive Safety Measures Under Uncertainty," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 19(1), pages 35-51, June.
    • Handle: RePEc:pal:genrir:v:19:y:1994:i:1:p:35-51
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