Citation

Calcott P. Int. Rev. Law Econ. 2004; 24(1): 71-88.

Copyright

(Copyright © 2004, Elsevier Publishing)

DOI

10.1016/j.irle.2004.03.005

PMID

unavailable

Abstract

Imperfect information suggests a potential rationale for safety regulation. If government officials have information that citizens do not, then regulation could be in the citizens' interests. But if officials are excessively concerned with safety, then safety warnings might be preferable to regulation. A formal model is developed to examine these arguments. Regulation is represented as restrictions on citizens' action sets. Government warnings are modeled as cheap talk. Regulation may be beneficial--even when it results in a higher accident rate. If officials can effectively communicate warnings, then can indeed be preferable to regulation. But it is not always preferable. Giving officials the power to regulate can improve their incentives to communicate truthfully.