Effectiveness of OSHA Penalties: Myth or Reality?

This paper examines the penalty provisions of the Occupational Safety and Health Act (OSHA) from a decision theory point of view. Four cases are examined in order to determine the effectiveness of the penalty provisions with respect to encouraging compliance with the Act prior to an inspection. All cases are based on historical inspection and citation data. It is shown that unsafe conditions will be corrected only if the cost of correction is less than a particular upper limit — these limits are presented for all cases for various rates of return. It is noted that, in general, a rational economic decision maker would choose not to comply with the Act until he were cited and forced to do so.