Market-Based Safety Regulation
Perhaps the most obvious potential application of predictive decision making is in the area of government safety regulation. Like many countries, the Labor and commercial interests might find more common ground with regard to safety regulatory issues if market-based approaches allowed the government to mandate safety improvements without specifying the precise mechanisms that regulated entities need to follow. Commentators have not previously identified market-based approaches to safety regulation but have focused instead on compromise strategies such as regulations designed to improve the information available to workers.30 The predictive decision making strategy, however, points to a possible solution. The government could mandate that regulated entities achieve certain safety goals but measure whether the entities have done so only by considering predictions of the likelihood of injuries and accidents. For example, prediction markets or a partial insurance requirement might be used to predict the number of injuries and deaths for each regulated mine. Government regulations could then specify only targets that particular mines need to achieve, based in part on factors such as the amount of mining and the number of employees in each mine. An alternative, of course, would be simply to provide strict liability for mines, but if that is undesirable or politically infeasible, the predictive decision making strategy allows the government to regulate without imposing detailed regulations or full liability on mine operators. If private predictors can outperform the government in assessing the degree to which particular mining practices invite danger or the cost of implementing various safety precautions, then predictive decision making could allow private entities to achieve any given level of expected safety at a lower cost. Private predictors would reward mine operators for taking relatively low-cost safety precautions and would not punish them excessively for abandoning high-cost precautions that provide little safety benefit. Market-based safety regulation need not mean less safety. Consider, for example, the nuclear safety context. Because of the Price-Anderson Act,31 the liability of nuclear power plant operators is limited. The justification for this limitation is that the potential consequences of a nuclear accident are so grave that the insurance industry would not be able to cover it. The liability limitation, however, presumably leads nuclear power plants to invest less in safety, although governmental regulation pushes in the opposite direction. The market approach to safety regulation might insist that each nuclear power plant owner obtain some small amount of insurance that the insurance industry would be able to handle and then purchase additional insurance from the federal government at actuarially fair rates. Or prediction markets might assess the probability of minor plant accidents and major catastrophes, and the government might insist that plants achieve at least some level of safety.
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