Compensation for Occupational Disease: Evaluating the Options

This paper evaluates alternative rules of liability and compensation for occupational disease. The criterion applied is minimization of the sum of the costs associated with occupational disease, disease prevention, uninsured risk costs, and litigation and insurance overhead or transaction costs. Options considered include the workers' compensation system, the tort system, first party insurance, and potential government programs. It is argued that the costs of insurance and uninsured risk significantly affect the optimal liability rule for occupational disease, because the long latency of many occupational diseases undermines diversification of risk through liability and first party insurance. The workers' competisation system, with pro rata division of liability among contributing employers, appears to be superior to the alternatives.