Safety at Any Price? Following a Dramatic Expansion of Federal Health and Safety Regulation, Americans' Gains Are Uncertain. (25Th Anniversary Special Section: Risk)
Viscusi, W. Kip, Gayer, Ted, Regulation
THE 1970S MARKED THE ADVENT OF A major wave of health and safety regulations. Before that time, the standards that we now take for granted were completely absent from the American economy, with the exception of selected regulations for food safety and prescription drugs. The rise of the consumer movement and environmental concerns led to the establishment of the National Highway Traffic Safety Administration (NHTSA) in 1966, the Occupational Safety and Health Administration (OSHA) in 1970, the Environmental Protection Agency (EPA) in 1970, the Consumer Product Safety Commission (CPSC) in 1972, and the Nuclear Regulatory Commission (NRC) in 1974.
After three decades of experience with that wave of regulations and government oversight, we have a reasonable basis for making an assessment of earlier performance. Agencies have had the opportunity to issue regulations, assess their effects, and revise them accordingly. We believe that health and safety regulations have largely failed to fulfill their initial promise, but many of the initial promises were infeasible goals. There continues to be major opportunities to improve regulatory performance by targeting existing inefficiencies and using market mechanisms (rather than strict command-and-control mechanisms) to achieve regulatory goals.
WHY THE GOVERNMENT REGULATES RISK
Government action in the health and safety arena can be justified when there are shortcomings in risk information or textbook cases of externalities. Unlike many other regulatory contexts, complete deregulation of health and safety provisions may not be the ideal economic solution; some forms of regulation often are desirable.
The goal of regulatory agencies that address health and safety risks should be to isolate instances in which misinformation about health risks prevents people from making optimal tradeoffs and to isolate instances where health risks are not internalized in market decisions. Of course, it is important that agencies use flexible market-based regulations to achieve their goals at least cost.
The existence of a health risk does not necessarily imply the need for regulatory action. In the case of job safety, for example, perceived risks of job hazards lead to considerable compensating differentials for risk. In a fully functioning market, workers receive wage compensation sufficient to make them willing to bear the risk; the health risk is internalized into the market decision.
In situations in which the risks are not known to workers, as in the case of dimly understood health hazards or situations in which the labor market is not competitive, market forces might not operative effectively to internalize the risk. Those cases provide an opportunity for constructive, cost-effective government intervention.
Eliminating risk? Unfortunately, the rationale of correcting market failures has never been a major motivation of regulatory intervention. The simple fact that risks exist has provided the impetus for the legislative mandates of the health and safety regulatory agencies. To this day, very few regulatory impact analyses ever explore in any meaningful way the role of potential market failure and the constructive role that market forces may already play in the regulatory situation that is being considered.
The conventional regulatory approach to health and safety risks is to seek a technological solution either through capital investments in the workplace, changes in the safety devices in cars, or similar kinds of requirements that do not entail any additional care on the part of the individual. The initial faith in the technological approach was so great that proponents envisioned a dramatic improvement in safety from such regulation. A co-sponsor of the Occupational Safety and Health Act of 1970, Rep. William Steiger (R-Wis.), proclaimed that by 1980 injuries would be reduced by "fifty percent or something like that. …