Government mandated safety standards within firms

Question

Quizplus · Accepted Answer

Government mandated safety standards can increase efficiency by avoiding a prisoner's dilemma outcome. In a prisoner's dilemma, firms may be incentivized to cut corners on safety standards to reduce costs and increase profit. However, if all firms are required to meet the same safety standards, no individual firm will have a competitive advantage by cutting corners on safety. This leads to a more level playing field and avoids a race to the bottom in terms of safety standards.

Government Mandated Safety Standards Within Firms