We explore the welfare effect of minimum safety standards, focusing on the
case where duopoly firms are asymmetric in that they have different safety effort costs.
If duopoly firms are symmetric, they do not provide enough safety to be socially effi-
cient, and so imposing minimum safety standards can resolve this problem. We show,
however, that imposing minimum safety standards may reduce the social welfare when
there is a large asymmetry in the safety effort costs. In the unregulated equilibrium, the
high-cost firm’s safety effort is smaller than that of the low-cost firm, and the high-cost
firm is more likely to provide a larger safety effort than is needed to have a socially
efficient level with larger asymmetry in the safety effort costs. If safety standards raise
the high-cost firm’s safety effort, both firms’ safety efforts may end up further away
from the socially efficient level: the low-cost firm reduces its safety effort when the
rival’s effort increases because safety efforts are strategic substitutes.

• Minimum safety standards with asymmetric safety costs