An economic analysis of tort law and insurance : the impact of strict liability on road and workplace accidents

Abstract

This thesis investigates the impact on accidents of the change from negligence to strict liability in the workplace and on the roads. As the impact of a liability rule and so safety incentives depend on the risk sharing arrangements, the effect of the change in liability can only be assessed after account has been taken of the other factors influencing safety decisions, in particular, insurance incentives. Other empirical studies of the introduction of workers' compensation and road accident no-fault schemes have failed to separate the impact of changes in liability from changed insurance arrangements. The results of more comprehensive empirical studies than so far attempted suggest that the introduction of strict liability increased accidents both on the roads and in the yvorkplace. The results suggest that the common law serves an important role in promoting safety. Workers' compensation reformers argued that the imposition of employer strict liability for accidents would give employers greater incentives to improve workplace safety. Road accident no-fault reformers, on the other hand, did not regard safety as an issue because, it was argued, insurance reduced any possible deterrent effect. The empirical evidence presented here does not bear the reformers out. Both workplace and road accidents increased after strict liability was introduced. As well, empirical results are presented which indicate that ex ante risk compensation was paid as wages in the coal industry in New South Wales at the time of the introduction of workers' compensation. This occurred despite an exogenous wage fixing process which decried the payment of 'blood money'. Risk remuneration was paid, indirectly, through special allowances for poor working conditions. A novel feature of this study was the compilation of individual firm data from previously unused archival records. All previous studies have used highly aggregated data which suffer from measurement error, particularly in relation to the measurement of risk. Evidence is presented to show, in accordance with basic economic theory, that risk-compensating wages are an important factor in promoting safety. Workers' compensation reformers and subsequent legal and historical scholarship argued that the 19th century employer defences (fellow-servant, assumption of risk and contributory negligence) were designed to protect factory owners from industrial accident liability and so shift the burden of industrial development onto the shoulders of the working class. The evidence presented in this thesis does not support the contention that the working class bore the burden. Workers were compensated for risk and there is evidence to suggest that wage risk-compensation was lower after the introduction of workers' compensation, suggesting that overall worker compensation may not have changed a great deal. Show more