Liability rules determine social welfare and risk reduction in hazardous activities.
The article explores how rules about who is responsible for accidents affect safety and overall well-being when risky tasks are outsourced. It looks at how companies can encourage safety in their contracts with other firms to reduce the chances of accidents. The study finds that when companies are financially stable, making the main company fully responsible for accidents leads to the best outcomes. However, if the other companies might go bankrupt, the best approach depends on their financial situation and the costs of safety measures. In any case, focusing on reducing risks leads to the most benefits for society.