This article analyzes the failure of the Indian state in providing compensation to victims of the Bhopal Gas Leak. On it’s thirtieth anniversary most of the known victims have not received their compensation, or adequate health care, and have spent three decades dealing with the state bureaucracy for their claims. This is a case where the state’s paternalistic takeover of victims’ claims and compensation, through the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 (BGLDA), may have killed thousands because of bureaucratic delays and errors. This article critiques the BGLDA from the economic point of view.
The BGLDA gave the Central Government the exclusive right to, represent, and act in place of all the victims and claimants. The processing of claims of victims of the gas leak is fraught with Type I and Type II errors. Funds were diverted to pay spurious claims (or Type I error) and after thirty years genuine victims have still not received compensation (Type II error). This paper argues that the adversarial system of litigation, due to its competitive nature in the production of evidence, minimizes both types of error. In addition, lawyers working on contingency fees within an adversarial legal process have the appropriate incentives to minimize both types of errors. The welfare commissioners and the bureaucracy set up under the BGLDA did not have the appropriate incentives to discover the knowledge generated in the adversarial system.
The BGLDA, in replacing the adversarial system with the inquisitorial state bureaucracy and circumvented the discovery process, which led to high error and delayed compensation.
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