Policy Incentives for Dangerous (But Necessary) Operations

Abstract

In industries where firms perform dangerous (but necessary) operations, liability costs—due to potential harm to third parties—can be significant. Firms may therefore find it optimal to exit the market, and this may lead to an inefficiently low number of incumbents. A social planner can discourage exit by offering appropriately designed subsidies. Ex ante subsidies defray the costs associated with making operations safer (e.g., funds to subsidize the purchase of safety equipment). Ex post subsidies mitigate the financial damages caused by an accident (e.g., funds to defray the cost of cleaning up a toxic spill). We consider a model where (i) firms have private information about their ability to improve reliability and (ii) reliability investments are unobservable. We demonstrate that when the social value of reliability outweighs the benefit of increased competition, it is optimal to offer ex ante subsidies alone (i.e., to subsidize the cost of making operations safer). Conversely, when the benefits of competition outweigh the benefits of reliability, a combination of ex ante and ex post subsidies is optimal (i.e., not only to subsidize safer operations, but also to share the costs of a potential accident).

Do E‐Waste Laws Create Behavioral Spillovers? Quasi‐Experimental Evidence from California

“…Several OM studies on e-waste legislation and take-back laws have adopted the social welfare planner's or the policy maker's perspective (Atasu et al 2013(Atasu et al , 2009Atasu and Van Wassenhove 2012;Esenduran and Kemahlıoğlu-Ziya 2015;Gui et al 2015;Mazahir et al 2019). Furthermore, OM scholars have explored issues from a social planner's perspective in several other domains such as municipal water distribution (Dawande et al 2013;Murali, Lim, and Petruzzi 2015), organ donation (Arora and Subramanian 2019) and tort liability (Serpa and Krishnan 2016). Our paper similarly takes the social welfare planner's perspective and seeks to provide insights to policy makers on e-waste laws.…”

“…2013; Murali et al. 2015), organ donation (Arora and Subramanian 2019), and tort liability (Serpa and Krishnan 2016). Our study similarly takes the social welfare planner's perspective and seeks to provide insights to policy makers on e‐waste laws.…”

Prevent or Report? Managing Near Misses for Safer Operations

“…Within the broad operations literature on disruption risk management (e.g., Tomlin 2006, Aydin et al 2010, Kim et al 2010, Serpa and Krishnan 2016, Chod et al 2019, precursor analysis (or near miss management) is a key tool for ensuring safety and improvement of processes, in the face of rare disasters. Given the rarity of disasters, risk management must rely on more frequent near misses (Phimister et al 2003, Blanco et al 2019.…”

“…The literature on responsible operations explores the effectiveness of interventions such as supplier choice (Guo et al 2015), sourcing channel (de Zegher et al 2019), and certification (Chen and Lee 2016), and it highlights the perils of subcontracting (Caro et al 2020). Several authors have focused on incentives under different regulatory policies (e.g., Plambeck and Wang 2009, Atasu and Subramanian 2012, Serpa and Krishnan 2016. More germane to our work, this literature has studied the use of audits to ensure compliance (see the survey by Dawande and Qi 2021).…”

Importance and Impact of Culture and People in Continuous Improvement

“…Eachofthevariants(listedabove)willplayacriticalroleinfectingcontinuous improvement in an organization (Serpa, 2016) related to key factors, management factors,andenvironmentalfactorsinacorporateculture.Firstandforemost,cultures that encourage communication and have open-door policies have the potential to institute change and continuous improvement faster than companies that have an inflexibletop-downcommunicationapproach.…”