TABLE OF CONTENTS INTRODUCTION 591 I. AGENCY PENALTIES FOR FATALITIES 593 A. Occupational Safety and Health Administration: Worker Fatalities 594 B. Food and Drug Administration: Food Safety 600 C. Department of Transportation: Motor-Vehicle Safety 604 D. Environmental Protection Agency: Air Pollution Emissions and Pesticide Risk 608 E. Implications for Assessment of the Adequacy of Penalty Levels 611 II. ESTABLISHING THE OPTIMAL DETERRENCE REFERENCE POINT 614 A. Promoting Optimal Levels of Deterrence 614 B. Empirical Evidence and Policy Practices 616 C. How the Values Influence Regulatory Criteria 619 D. Setting the Price for Corporate Decisions 620 E. The Role of Other Financial Incentives 623 F. Implications for Setting the Deterrence-Based Penalty Levels 627 III. RECTIFYING THE PENALTY STRUCTURE 628 A. Occupational Safety and Health Administration 628 B. Food and Drug Administration 633 C. Department of Transportation 635 D. Environmental Protection Agency 636 E. Implications for Regulatory Enforcement 639 IV. PENALTIES AND CORPORATE RISK ANALYSES 640 A. The Ford Pinto Experience 641 B. GM's Risk Analysis Efforts 643 C. Controversial Risk Analyses by Ford and Chrysler 645 D. The Decline in Corporate Risk Analysis Efforts 646 E. Establishing a Supportive Legal Environment for Corporate Risk Analysis 648 CONCLUSION 651 INTRODUCTION
The impact of government policies depends on their design, implementation, and enforcement. (1) The administrative law literature focuses primarily on matters of regulatory structure. (2) Government agencies entrusted with protection of the environment and promotion of health and safety foster these objectives by designing and promulgating regulations that are sometimes quite stringent. (3) Whether these regulations will in fact generate their intended effects depends on whether they create sufficient economic incentives to discourage risky behavior.
In a noteworthy 2016 incident, the Occupational Safety and Health Administration proposed a fine of $411,540 on the Cooperative Producers Inc. Hayland facility after an elevator supervisor suffocated when his lifeline became tangled in an unguarded, rotating augur. (4) The agency levied these penalty levels, which were higher than the typical job safety violation penalty, because the company was a repeat offender, having been cited six times for safety violations from 2011 to 2015. (5) In the 2016 post-fatality inspection, the agency foundCooperative Producers Inc. Hayland Facility guilty of three egregious willful violations and three serious violations. (6) Are fines of this magnitude appropriate for regulatory violations leading to fatalities and, more generally, what should be the regulatory function of financial sanctions when lives are at risk? This Article demonstrates a mismatch between the level of stringency of regulatory design and regulatory enforcement for federal risk and environmental regulatory agencies. The gaps that are identified do not involve subtle distinctions, as the stringency of regulatory standards often dwarfs that of enforcement efforts.
The economic benefits associated with the reduction of mortality risks constitute the largest component of all regulatory benefits for federal regulations. (7) The principal framework used in assessing the value of the reduction of mortality risk is based on the risk-money tradeoff for very small risks, or what has come to be known as the "value of a statistical life," or the VSL. (8) The values currently used by many government agencies to value each expected fatality prevented are in the vicinity of $9 million or more. (9) Although the VSL establishes a substantial price for expected fatalities resulting from different risks, this price pertains to the risks assessed prospectively by regulatory agencies. (10) In situations in which companies violate the regulations in a manner that leads to worker or consumer deaths, the price attached to lives is often quite low. (11) In this Article, the VSL serves as the appropriate deterrence-based estimate of the value that should be placed on fatalities in agency enforcement efforts. (12) This Article documents the mismatch in the valuations and proposes statutory changes to address the imbalance.
The Article begins by documenting the low values currently placed on life in regulatory enforcement efforts. Part I presents examples involving job safety, food safety, motor-vehicle safety, and environmental quality, which demonstrate that the assignment of low values to fatalities is not an infrequent practice. Why such low values are problematic is the focus of Part II, which outlines the practices used in regulatory impact analyses for prospective regulations and the principles for optimal deterrence. To implement these principles requires changing the current statutory guidance, as the agencies currently are hamstrung by very low caps on allowable penalties. (13) Part III presents the proposed revisions of several representative statutes pertaining to health, safety, and the environment. Once firms begin to face meaningful enforcement sanctions, this enhanced penalty structure will alter their calculation of the costs and benefits of regulatory compliance. As Part IV indicates, establishing penalty levels consistent with law and economic theories of optimal deterrence also will influence the corporate risk analyses used in determining appropriate levels of safety. But realizing the full potential of such changes will require that companies be provided with legal protections for undertaking analyses that balance the competing economic concerns of costs and risks. The concluding discussion summarizes the rationale for rectifying the mismatch between regulatory design and regulatory enforcement.
AGENCY PENALTIES FOR FATALITIES
To examine the disparity between the optimal deterrence amounts and the penalties levied for regulatory violations, this Part examines the determination of the penalty levels for four government agencies concerned with the promotion of worker safety, product safety, and environmental safety. Common themes exist in the analysis of the job safety violation penalties levied by the Occupational Safety and Health Administration (OSHA), (14) the food safety violation penalties levied by the Food and Drug Administration (FDA). (15) the motor-vehicle safety violation penalties levied by the Department of Transportation (DOT), (16) and the environmental violation penalties levied by the Environmental Protection Agency (EPA). (17) The statutory guidance for each of these agencies establishes the permissible penalty structures and, in particular, the upper limit on the penalties that are permitted. (18) As this review will indicate, the penalty amounts fall far short of what would be adequate from the standpoint of generating incentives for optimal levels of deterrence. (19)
A. Occupational Safety and Health Administration: Worker Fatalities
The very modest level of penalties that federal regulatory agencies assess for fatal regulatory violations is exemplified by the performance of OSHA. OSHA's regulatory approach is to set health and safety standards, to inspect firms to ascertain whether they are in violation of the standards, and to assess penalties for standards violations that are identified in these inspections. (20) Many of these standards pertain to traumatic injuries, which means there are no latency periods or problems in inferring the work-related causality as there would be for illnesses such as cancer. (21) As a result, OSHA serves as an excellent starting point for considering how and at what level penalties are assessed for regulatory violations involving deaths. (22) As this Article will demonstrate for other federal agencies as well, (23) the statutory structure of the penalties that OSHA is permitted to levy constrains the amount of fines that the agency can impose for regulatory violations, leading to inadequate incentives for safety. (24)
OSHA has several classifications for the level of violations. Those violations that are most directly pertinent to the prevention of fatality risks are classified as "serious" violations. (25) "A serious violation exists when the workplace hazard could cause an accident or illness that would most likely result in death or serious physical harm, unless the employer did not know or could not have known of the violation." (26)
The Occupational Safety and Health Act of 1970 established a cap of $1000 for each such serious violation, which was later raised to $7000. (27) There was no apparent underlying methodological basis for setting that level, such as reliance on an economic deterrence measure such as the VSL (28) or even the value of compensation in wrongful death cases, which addresses the financial losses after a fatality rather than the value of preventing the risk of death. (29) Each of these measures would have led to considerably greater penalty levels. (30) During the almost half a century after the establishment of the initial penalty levels, the upper limit on penalties has been updated somewhat for inflation but not otherwise revamped so that the maximum allowable penalty per serious violation has risen to $12,934 per violation in 2018. (31) Even this inflation update is inadequate, as the consumer price index increased by a factor of more than six since the passage of the Occupational Safety and Health Act of 1970. (32) Therefore, a penalty level of at least $42,000 per serious violation would be warranted. Violations that are characterized as "[o]ther-than-seriou[s]," violations related to posting requirements for notices from OSHA, and violations associated with a failure to abate a violation, also are subject to the same maximum amounts per violation. (33) Violations that are willful or repeated and which reflect indifference to employee safety were subject to a statutory cap of $70,000 (34) that has since been updated to $129,336 per...