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Incentives and the Changing Structure of Penalties in New Zealand's Health and Safety in Employment Act

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This article argues that it is doubtful that the fivefold increase in maximum fines under New Zealand's Health and Safety in Employment Amendment Act 2002 will be successful in providing suitable precautionary incentives. Expected penalties remain at relatively low levels, with the continued use of capped fines along with substantial margins for deterrence of the most serious cases. On average, fines were initially substantially lower in response to the introduction of the Sentencing Act 2002 for which uncapped (but insurable) reparations take precedence over fines, and must be accounted for in setting fines. The combined effects of the legislation led to average total financial penalties approximately doubling through 2004 rather than increasing at anything like the rate signalled for fines by the amendments. Subsequently, while fines have grown in absolute terms, even more rapid growth in reparations has caused relative crowding-out while total penalties remain well below those signalled by the amendments alone. The case for low caps on fines appears weak, while 'asset-testing' fines is unlikely to be an efficient practice. Absent further significant changes in workplace safety incentives, New Zealand is likely to face an ongoing (if possibly somewhat abated) stream of prosecutions for serious breaches of relatively onerous statutory health and safety duties.

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Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 06/03.

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Length: 32 pages
Date of creation: 01 Jun 2006
Handle: RePEc:cbt:econwp:06/03
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  1. Paul Gordon & Alan Woodfield, 2007. "Ex ante liability rules in New Zealand's health and safety in employment act: A law and economics analysis," New Zealand Economic Papers, Taylor & Francis Journals, vol. 41(1), pages 91-108.
  2. 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.
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