Suppose that the pizza industry produces 1000 pizzas each. Consider two different industrial organization structures for this industry;
Case A; One firm produces all 1,000 pizzas (monopoly).
Case B: 100 firms each produce 10 pizzas (perfect competition)
The WSJ argues that there will be fewer accidents in this industry if Case A describes the industry rather than Case B.
Why?
The Case A firm knows;
1. It is so big that disasters will cause public relations disasters as the NY Times will publicize such problems.
2. It will attract regulator attention if disasters do take place and this will incentivize it to engage in more ex-ante costly precautionary investments
3. It has the capital financing to be able to invest in better equipment as it is less likely to be liquidity constrained than smaller firms who do not have the same access to capital.
4. It has higher quality managers running the firm and has a large enough scale to hire specialized human capital with expertise in risk minimization.
A critic might counter that the big firm has the resources to payoff regulators and Congressional leaders to look the other way when accidents occur but this claim is contradicted by the facts the WSJ piece mentions.
Could "Big Capitalism" be a friend of the environment relative to perfect competition?
The links between an industry's composition of firms (holding the total scale of output constant) and the industry's environmental performance has not been studied by modern economists.
