Negligence 'In the Air' and New Zealand's Health and Safety in Employment Act: A Law and Economics Analysis

Given relatively weak industrial safety incentives in New Zealand's accident compensation legislation, an important development has been the Health and Safety in Employment Act 1992. In addition to penalties imposed in the event of accidents involving loss, the Act also imposes penalties where accidents or losses have not occurred. Ordinary negligence rules are ex post in that both an accident and loss must occur before liability accrues, whereas negligence-based ex ante liability rules hold agents liable for deficient care prior to such deficiency being manifested in an accident. This paper examines whether breaches of statutory duties which do not give rise to accidents have a useful incentive-enhancing role when used in conjunction with ex post negligence rules. It is argued that ex ante standards may useffilly complement ex post liability rules where the latter are insufficient to induce appropriate levels of precaution due to the presence of errors in courts' decision-making processes. More strict standards than socially optimal precaution levels may be necessary since inspection probabilities and penalties are relatively low, while fines should be several times larger than expected accident costs resulting from deficient levels of care. The distribution of penalties emerging from the relevant case law is examined, and some, but not much, merit is found in continuing adherence to capped fines which in themselves further strengthens the case for stringent ex ante safety standards.