How Safe is "Too" Safe?

Black, S., Niehaus, F., & Simpson, D. (1979). How Safe is "Too" Safe? IIASA Working Paper. IIASA, Laxenburg, Austria: WP-79-068

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Abstract

Safety expenditures usually follow the law of diminishing returns, i.e. marginal cost of risk reduction increases progressively with the level of safety achieved. Though the risk of a facility can in principle be reduced below any given value it is not possible to reduce the risk to zero, to reach "absolute safety". This poses the question about the level at which further risk reduction is no longer cost-effective.

This paper demonstrates that these considerations are only valid if a system element (e.g. a plant) is analyzed. When the total economic system is considered another source of risk has to be added: the occupational and public health effects associated with the production of safety equipment.

Using some simplifying assumptions and data from national economic input-output tables and occupational accident statistics it is possible to derive a linear relationship between the cost of the safety equipment and the health effects caused by its production. When this relation is combined with the. exponential risk-cost relationship of the facility under consideration, the combined curve exhibits a minimum value where the health effects of producing the safety feature equals the health effects avoided when it is installed. It is shown that if one probable health effect at some unknown future, time is avoided by use of $30 million of safety equipments, one equivalent health effect will certainly occur at the present time. The problem of balancing these two effects is a societal decision which is not addressed herein.

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