On the political economy of public safety investments

Abstract

This paper explores the interaction of private precaution and public safety investments that are determined in a political process. We distinguish between a scenario in which the median-voter victim influences public safety and one in which the injurer lobbies the public agent, analyzing both negligence and strict liability with a defense of contributory negligence for each scenario. We establish that the levels of injurer and victim care are always socially optimal for the equilibrium level of public safety. However, the equilibrium level of public safety differs from its first-best level and drastically depends on both the specifics of the political process and the liability rule applied. This implies that, in contrast to results from the classic literature, the level of social costs is critically determined by the choice between liability rules (for a given political process).