Decision-makings in safety investment: An opportunity cost perspective

This paper analyzes the factors influencing safety investment decisions by the government and enterprises from an opportunity cost perspective, which consists of shortage cost due to the occurrence of accidents and excess cost due to investing more than required for accident prevention. Analytical models are built by minimizing expected total opportunity costs. The result of government decision reveals that optimal government safety investments vary positively with unit shortage cost, while they vary inversely with unit excess cost. The mandatory safety investment level established by government for enterprises, which is exactly the same as the optimal government safety investment level, can compel the enterprise to invest more in safety measures when it is higher than the optimal enterprise safety investment level without the mandatory standard. Based on the analytical models, factors influencing safety investment decisions are analyzed through consideration of a case study of China. The results of the case study indicate that the ineffective administrative accountability system, performance appraisal system of local government and officials and government-enterprise relations all contribute to the high accident frequency in China by leading to a safety investment decision with a lower safety level, which also verify that the analytical models proposed in this paper are reasonable. (C) 2015 Elsevier Ltd. All rights reserved.