Last week, the Chicago Tribune published a story entitled “All cribs now must pass tough new safety rules” which describes in some detail new regulatory crib safety standards that have been promulgated by the Consumer Products Safety Commission (CPSC).  While crib deaths are obviously incredibly tragic, they are also very rare events.  Here, I call attention to some potentially deadly (and unsavory) “unintended” consequences associated with the proposed policy changes.  I’ll do this through the lens of George Stigler’s theory of regulatory capture.

The Wikipedia definition for regulatory capture is as follows: “…regulatory capture occurs when a… regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating.”  A good place to start in this particular case is by thinking carefully about the underlying interest group politics behind this new federal regulatory initiative. The above referenced Chicago Tribune article notes, among other things, that “federal regulators recommend that families that can afford to do so buy new cribs and destroy their old ones (italics added for emphasis).” Think of the market consequences if everyone followed the CPSC’s “advice” – all of a sudden, you would have a sharp reduction in the supply of used cribs; furthermore, without the presence of a viably competitive used crib market, this means that the primary demand for baby cribs will likely be met by manufacturers whose products comply with the new regulations. Given this adverse supply shock while holding demand constant can only mean one thing – higher prices for baby cribs.  The next obvious question is, who is likely to benefit financially from these new regulations?  Baby crib manufacturers who can produce new cribs which are fully compliant with the new regulations obviously stand to benefit, particularly if the effect of the regulations is to create entry barriers (in the form of regulatory fixed costs) to this industry (hat tip to my Baylor colleague Dave VanHoose for pointing this aspect of regulatory capture out to me).  I can’t help but wonder whether the Juvenile Products Manufacturers Association has been actively lobbying for these new regulations for these very reasons.

Another interest group which stands to benefit is the plaintiffs bar who can be expected, in the wake of this change in regulatory policy, to pursue quite aggressively products liability cases against companies whose baby cribs at the time of manufacture were not fully compliant with the new safety regulations.  That it is possible to successfully litigate cases under such circumstances came as somewhat of a surprise to me, until I read Peter Huber’s book entitled Liability a number of years ago and more recently, a Supreme Court decision which seems to have established a precedent that full compliance with federal safety regulations at time of manufacture does not necessarily grant manufacturers immunity from liability after the fact (e.g., see “Supreme Court allows lawsuits over seat belts”, Reuters, February 23, 2011). It will be interesting to see whether this new regulatory initiative emboldens the plaintiffs bar to also pursue formal certification of pending baby crib lawsuits as class actions (if they haven’t already done so!). Of course, the additional legal cost will quickly become reflected in the price of new baby cribs, which will in turn make lawsuits all the more profitable to pursue (since payments to attorneys in such cases are largely based upon contingency fees) and baby cribs less affordable.

In the meantime, parents who can’t afford the sharply higher prices (due to higher direct and indirect regulatory and liability costs) for baby cribs will either violate regulatory policy outright by buying cribs off eBay and from garage sales; other parents will simply improvise their own sleeping solutions for their babies, which will likely be far more hazardous for babies than the cribs that the CPSC is currently in the process of outlawing. What a mess!

Last week, the Chicago Tribune published a story entitled “All cribs now must pass tough new safety rules” which describes in some detail new regulatory crib safety standards that have been promulgated by the Consumer Products Safety Commission (CPSC).  While crib deaths are obviously incredibly tragic, they are also very rare events.  Here, I call attention to some potentially deadly (and unsavory) “unintended” consequences associated with the proposed policy changes.  I’ll do this through the lens of George Stigler’s theory of regulatory capture.

The Wikipedia definition for regulatory capture is as follows: “…regulatory capture occurs when a… regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating.”  A good place to start in this particular case is by thinking carefully about the underlying interest group politics behind this new federal regulatory initiative. The above referenced Chicago Tribune article notes, among other things, that “federal regulators recommend that families that can afford to do so buy new cribs and destroy their old ones (italics added for emphasis).” Think of the market consequences if everyone followed the CPSC’s “advice” – all of a sudden, you would have a sharp reduction in the supply of used cribs; furthermore, without the presence of a viably competitive used crib market, this means that the primary demand for baby cribs will likely be met by manufacturers whose products comply with the new regulations. Given this adverse supply shock while holding demand constant can only mean one thing – higher prices for baby cribs.  The next obvious question is, who is likely to benefit financially from these new regulations?  Baby crib manufacturers who can produce new cribs which are fully compliant with the new regulations obviously stand to benefit, particularly if the effect of the regulations is to create entry barriers (in the form of regulatory fixed costs) to this industry (hat tip to my Baylor colleague Dave VanHoose for pointing this aspect of regulatory capture out to me).  I can’t help but wonder whether the Juvenile Products Manufacturers Association has been actively lobbying for these new regulations for these very reasons.

Another interest group which stands to benefit is the plaintiffs bar who can be expected, in the wake of this change in regulatory policy, to pursue quite aggressively products liability cases against companies whose baby cribs at the time of manufacture were not fully compliant with the new safety regulations.  That it is possible to successfully litigate cases under such circumstances came as somewhat of a surprise to me, until I read Peter Huber’s book entitled Liability a number of years ago and more recently, a Supreme Court decision which seems to have established a precedent that full compliance with federal safety regulations at time of manufacture does not necessarily grant manufacturers immunity from liability after the fact (e.g., see “Supreme Court allows lawsuits over seat belts”, Reuters, February 23, 2011). It will be interesting to see whether this new regulatory initiative emboldens the plaintiffs bar to also pursue formal certification of pending baby crib lawsuits as class actions (if they haven’t already done so!). Of course, the additional legal cost will quickly become reflected in the price of new baby cribs, which will in turn make lawsuits all the more profitable to pursue (since payments to attorneys in such cases are largely based upon contingency fees) and baby cribs less affordable.

In the meantime, parents who can’t afford the sharply higher prices (due to higher direct and indirect regulatory and liability costs) for baby cribs will either violate regulatory policy outright by buying cribs off eBay and from garage sales; other parents will simply improvise their own sleeping solutions for their babies, which will likely be far more hazardous for babies than the cribs that the CPSC is currently in the process of outlawing. What a mess!