According to a BBC article, regulations for petting farms regarding E. coli have increased. Although it’s tragic nearly 100 people were infected, the incentive structure more regulation creates may trigger additional outbreaks. However, regulators aren’t the only danger: court can be dangerous as well.
The Health Protection Agency has been criticized for lack of response and effective regulation. They have now proposed means to fix the problem and prevent further petting mishaps through a “multi-agency implementation committee” and a rumored no-petting policy. Not only does this increase public spending, it shifts the risk burden on the regulators. Farms need only follow arbitrary regulations imposed on them. Regulators have little idea what the optimum level of risk is and seldom work efficiently at the rules they do enforce. In the absence of the Health Protection Agency, the petting farms would take action to determine itself how to safely operate. The forces of demand, competition, and consumer sovereignty would move the farms to a level of safety that reflects the market preferences
In addition to perverse government imposed incentives, the legal damages are also tricky. One reporter points out for some patients the infection could cause a lifetime of financial support. If victims sue for full damages, the farm would surely be out of business and its competitors would use extreme caution even without regulation. Is this ideal? Do we want that much caution from our petting farm providers? We rarely expect businesses to internalize all risk. If they did, the cost would be too high to yield profits.