Prevention Policy in an Uncertain Environment

This paper investigates the case in which benefits and costs of prevention are subject to uncertainty. It contrasts the conventional policy, that equalizes marginal costs and benefits of prevention once they are known, to the ex ante optimal policy, 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 prescribing less prevention in contingencies characterized by high compliance costs and a high probability of injury.