Information failures and risky buildings [updated]

By Eric Crampton 17/09/2013

There’s a trade-off when government agencies disclose known risks. Take, for example, AIDS disclosure laws. Some US states require that partners or others likely to be at risk from a patient testing positive for HIV;  others fear that the effect of such disclosure laws is to induce those at risk to avoid being tested. I’ve certainly not seen any data sufficient for running that cost-benefit analysis,* but it’s plausible that either regime could be the correct one.

Wellington Council has a list of buildings sharing the same design flaw as the collapsed CTV building in Christchurch. But they won’t tell anybody which buildings are on that list. Is this likely to be efficient? It depends on how Council knows and what they do with the information. If these kinds of flaws get found when Council officers dig back through the old building plans, then there’s little risk that disclosure induces building owners to hide flaws. If they’re found instead when owners inform Council, then disclosure could induce owners to keep quiet. So, in the former case, disclosure makes sense. In the latter case, it’s a trade-off. Whether it makes sense to keep things quiet then depends on the number of owners who would likely be deterred from revealing risks in the disclosure regime and on whether Councils actually do anything to ensure that risky buildings are made safe. If buildings of that sort fall under the usual “you have 30 years to fix it” rule, then it seems unlikely that we’re doing much good by keeping things quiet. If they’re working towards much quicker repairs of disclosed faults, and if we think that tenants would overreact to the risk disclosure, and if we think that building owners would hide faults in a disclosure regime, then perhaps non-disclosure makes sense.

I’m inclined to agree with NoRightTurn that the case for disclosure seems strong – and especially since the justification seems to be to avoid imposing losses on the owners of risky buildings rather than to avoid that other owners notify Council of building deficiencies. But I’d reverse that call if it turned out that Council were really pushing to get this fixed and if there were substantial risk from unknown building flaws that would fail to be notified under a disclosure regime.

Update: ‘An Engineer’, in comments below, suggested that errors in the list would be sufficient reason for non-notification. I agreed, noting that there would then be reason for Council to get in touch with owners to ensure that buildings were up to scratch, with disclosure if they weren’t fixed. Now looks like half the buildings have been cleared.

* This state-by-state variation seems eminent fodder for empirical work on the effects of disclosure laws on testing rates. File under “future honours projects” if it’s not already been done.