On the Political Economy of Public Safety Investments

This paper explores the interaction of private precaution and public safety investments when the latter are determined in a political process. We distinguish the scenarios in which the median victim infuences public safety from the one in which the injurer lobbies the public agent, and analyze both negligence and strict liability with a defense of contributory negligence. We establish that the levels of injurer and victim care are always socially optimal for the equilibrium level of public safety. However, the equilibrium level of public safety differs from its fi rst-best level and drastically depends on both the specifi cs of the political process and the liability rule applied. This entails that the level of social costs is critically determined by the choice between liability rules for a given political process.