Business Response to Regulation: An Economist's Perspective

Abstract

This chapter presents an economist's perspective on the interrelationship of the compliance and enforcement decisions of business and regulators in the context of regulations governing occupational health. Assuming profit‐maximizing firms and harm‐minimizing enforcement agencies, it is argued that a degree of preventive activity would be undertaken by businesses even in the absence of regulation. However, if employees are not fully informed about the risks of the workplace, it is likely that the profit‐maximizing level of prevention will be less than socially optimal, and consequently there will be a need for regulation. An enforcement agency which attempts to minimize harm through inducing compliance with regulatory standards will be faced with similar informational difficulties to individual employees, and this suggests some scope for cooperative gains with individual firms through negotiated compliance, rather than prosecution.