To what extent can penalties for non-compliance with safety regulations have un-intended effects?

An independent report examines the extent to which penalties for non-compliance with safety regulations can have unintended effects, depending on whether they are equal or unequal, and whether the information concerning them is accessible or inaccessible. It draws on a compliance study with 666 UK participants, who played the role of the owner of a business manufacturing toys. 

For the study, carried out by Tilburg University, Bonn University and the University of Cambridge on behalf of the Office for Product Safety and Standards, participants took on the role of a business owner that manufactures toys. They had to fill in a form and spend a certain amount of their virtually earned income as compliance costs to adhere to safety rules. The probability of being audited, the compliance costs due, and the business income varied systematically over the multiple rounds of the experiment. Importantly, participants were assigned to businesses with either higher or lower income, and we tested the effect of different penalty schemes and whether information on penalties other businesses faced was accessible or not.  

After making several decisions that impacted whether or not they were compliant, participants completed a short questionnaire, including attention checks, measures of risk propensity and norm following, as well as demographic information.

The three main research questions that were tested were as follows: 

• Does an unequal penalty rate for businesses with higher income in contrast to businesses with lower income result in an attenuated effect on relative compliance when this information on different penalties is accessible than when it is not accessible? 
• Does probability of being controlled, relative compliance costs and fluctuations in income influence relative compliance?  
• Do differences in business income (low vs. high business income) influence compliance with safety regulations in general? 

The report concludes that, the deterring effect of a higher penalty rate for high income businesses in contrast to low-income businesses works when the penalties are scaled to the size of the business and knowledge of this is not made available to all businesses. However, when information about such an unequal penalty scheme is available to all businesses, the effect of the higher relative penalty is attenuated, resulting in lowered relative compliance of big income businesses.  

Greater decreases in compliance rates are expected where penalties increase with the size of the business and all business types are aware of this. In combination with the finding that perceived unfairness of the scaled penalty scheme was associated with lower general compliance this suggests that penalty schemes that might be perceived as potentially unfair procedures can produce unintended negative effects on compliance of regulations administered by authorities. 

More information on ‘The effect of transparency, penalty size and business size on safety regulations compliance’ report, can be found here.

See also: How do periods of economic growth affect workplace injuries?

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