Response: More on Strict Liability

No, I haven’t given up on responding to the strict liability comments.  Here, I respond to two comments by Ritwik:

There are some tradeoffs involved here. For example, if a ‘bribe the inspector’ system exists, it’s becaue it is economically attractive – that is the amount of the bribe will typically be lower than the amount required to install the fire safety systems. Thus, there is no automatic incentive for a theatre owner to improve the safety requirements if the inspectors are removed.

My dear Ritwik!  What makes you think that fire safety is just a matter of installing safety equipment? What makes you think that any government regulation is designed to be easy to follow? My mother used to work in a small scale company and had to fend off these inspectors, and believe me, complying with the rules is simply not an option. Unless you pay them off, they will always be able to find a violation and harass you, even if the the violation is just using ink of the wrong colour in the quarterly fire drill report.

The next comparison would take into account the fiduciary responsibility in the case of a fire and the probability of a fire vs the payments as a result of improving fire safety norms or bribing. This comparison is not as obvious as the first because the two variables determining the LHS are unknown. Here, I believe that myopic thinking on the part of theatre-owners will typically lead to a decision against installing the safety norms. Some will still do the correct thing (just as some inspectors will not take the bribe and some theatre owners will install the equipment even if the bribe is cheaper).

“You believe” that theatre-owners will take myopic decisions. But in the real world, people buy insurance. And Annual Maintenance Contracts. They are willing to pay more than the actuarially fair costs to avoid a catastrophic event. * Your expectation of typical human behaviour is at odds with actual human behaviour.

Your argument then simply reduces to a judgement call that the number of people doing the ‘right thing’ will be higher in the second case than in the first. 

Sure. It does involve judgement calls. But if your estimates of costs and benefits actually lead you to think that the current system in India, with its extraordinary levels of corruption actually provides more benefits than costs, then you need to recheck your numbers. I can understand a defence of regulations and inspections which rely on improving the current system. But to defend the current system is to be more extreme than the Jagadguru, something I did not believe is humanly possible.

Then in the next comment Ritwik says:  

Also, this is quite a stretch.

“The answer is that the government should focus on Strict Liability, because fixing this will involve fixing only the court system, whereas trying to fix the regulatory system will involve fixing fire regulations, earthquake regulations, regulation against volcano eruptions and every single mishap that can conceivably befall our people. From a cost-benefit point of view, there is no doubt as to which is the priority. ”

Surely, asserting things about cost-benefit analyses without any mention of costs whatsoever is strange. The ‘fixing the court system’ can also be presented as numerous corrective measures instead of a single one as you have proposed – I’m sure you realise that the Indian judicial system taken as one single block involves significantly more people than each of the heads that you have contrasted it with.

I have no illusions about what is involved in fixing the court system. Fixing the court system will cost much, much more than trying to fix fire safety regulations. But have you considered the number of benefits that will flow from quick and efficient disposal of cases? The benefits that  come from corrupt politicians being in jail rather than in a position to appeal to the people’s court? The benefits from not having to bump off people in encounter killings? The benefits to the financial system from not having to hire goons to recover loans? In costing terminology, what I meant was that the costs of fixing the court system would be allocated across so many profit centres that the cost allocated to any one of them will be pretty low.

In any case, all this is moot. If you had read Aadisht’s comment, you would have realised that my statement is as true as saying that a+b>a for all positive values of b. I leave it as an exercise to you to figure out the reason.

* The analogy should be clear enough, but there is scope to misunderstand which event I am referring to as catastrophic here. So feel free to ask if you are confused

3 thoughts on “Response: More on Strict Liability

  1. Ravi,

    I wasn’t really defending the current system, only contrasting it with strict liability. Improving it is an option that is independent of contrasting it with strict liability. Besides, I am not even convinced about regulations vs strict liability. It’s just that I’m not yet convinced about strict liability either, and was wondering what makes you so convinced. I agree that I did not consider that one may have to pay off the inspector inspite of complying, but I still wonder how you believe that there exists an automatic incentive for theater owners to invest the money saved into ensuring fire safety. In fact, if bribe/penalty (@ genuine non-compliance of norms) – bribe ( @ trivial noncompliance) > cost of ensuring fire safety, then there exists some definite incentive to ensure fire safety. Though, I do not know if that is actually the case.

    I am indeed confused about which catastrophic event you’re referring to. And I’m not sure if buying insurance is the correct analogy. Insurance is a guaranatee of a payment in case that the catastrophe happens, it is not about preventing the catastrophe itself to avoid the future cost. A much more direct comparison would be steps to prevent motor accidents – why do so few people buy/wear helmets?

    I get your point about a+b>a, misunderstood your argument earlier.

  2. Ritwik,

    I believe that fire insurance policies are usually not granted to commercial structures unless the insurance company is satisfied that adequate mitigants to fire have already been installed, in order to control for moral hazard. For example, a major office building will not get fire insurance unless it puts up fire extinguishers.

    I’m not sure of how this works out operationally or is monitored, though.

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