Prevention Policy in an Uncertain Environment

This paper investigates the case in which benefits and costs of prevention are sub-ject to uncertainty. It contrasts the conventional policy, that equalizes marginal costs and benefits of prevention once they are known, to the ex ante optimal pol-icy, that accounts for the costs that uncertainty places on the affected parties. The ex ante optimal policy supports the use of a value of a statistical life constant across contingencies, it dilutes the dead-anyway effect, and it responds to the preventers’ level of prudence. It deviates from the conventional policy by pre-scribing less prevention in contingencies characterized by high compliance costs and a high probability of injury.