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Workers’ risk underestimation and occupational health and safety regulation

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Abstract

The standard treatment of occupational risk in the labour market is conducted in terms of the theory of compensating wage differentials, the basic characteristic of which is that workers can fully estimate actual occupational risks. However, research in cognitive psychology, and recent advances in economic psychology, suggest that individuals consistently underestimate risks associated with accidents. In this paper, we discuss the case when the workers systematically underestimate job risks. After presenting the standard treatment of occupational risks, and of health and safety at work regulation, we then proceed to incorporate the idea of job risk underestimation. The paper discusses the types and impact of regulation on health and safety effort in a simple framework in which workers’ beliefs concerning accident risks also play a role. The paper shows that a particular type of regulatory intervention is necessary for the risk underestimating workers not to suffer a welfare loss.

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Notes

  1. The discussion below is tangential to the methodological debate on ‘economic rationality’ between the neoclassical versus behavioural economics and its repercussions for policy (e.g. Jolls et al. 1998; Posner 1998). However, the present study abstracts from this important debate taking the empirical and theoretical evidence provided by the psychological literature at face value (see Gilbert 2006 for an interesting review).

  2. For a critical review, including the empirical findings supporting the CWD approach, see Dorman and Hagstrom (1998). In an earlier work, Leigh (1995) follows a similar critical line.

  3. There is a large body of literature examining the public management of risk and the role of key players such as public officials, risk generating firms and Courts of Law (see for instance, Hiriart et al. 2010 and references therein).

  4. There is no detailed data concerning the effects of OSH regulation in European countries and thus empirical results are not very clear, see Philipsen 2009.

  5. The public theories of regulation have traditionally assumed that regulators have sufficient information and aim to promote the public interest (e.g. Noll 1983). In this paper there is no need to assume that regulators are perfectly informed but in line with the bulk of the literature, it is assumed that they have access to more accurate data than workers concerning job risks (for a detailed review of theories of regulation, see Hägg 1997; Hertog 2010).

  6. It should be noted that the issue of the empirical testing of injury absenteeism is quite complicated given that a number of other factors also play a role in determining absenteeism levels (see for instance Reilly et al. 1995; Barmby et al. 2002). Similarly, given that job risks differ across sectors and types of jobs, the issue of regulatory differentiation also arises.

  7. Type 1 regulator will provide higher effort than Type 2 if Pw > Pr. In general, this indicates that the behaviour of the regulator is important when there are differences in risk perceptions.

  8. The ex post revision of workers risk perception is a very important issue which we do not consider in this paper. For the basic theoretical set up, see Spence 1977.

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Acknowledgments

The financial support of the European Commission under the Seventh Framework Programme, Theme HEALTH-2007-4.2-3 (Grant agreement no.: 200716) is gratefully acknowledged. The authors are also grateful to the anonymous referees of this journal for their very helpful comments.

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Authors and Affiliations

  1. Department of Philosophy and History of Science, University of Athens, Athens, 15771, Greece

    Stavros A. Drakopoulos

  2. Department of Economics, University of Aberdeen, Aberdeen, AB24 3QY, UK

    Ioannis Theodossiou

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  1. Stavros A. Drakopoulos
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Correspondence to Stavros A. Drakopoulos.

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Drakopoulos, S.A., Theodossiou, I. Workers’ risk underestimation and occupational health and safety regulation. Eur J Law Econ 41, 641–656 (2016). https://doi.org/10.1007/s10657-012-9379-3

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