Preventing Factory Fires through Contracts: Case study of Garment Factories in Bangladesh

Following a multi-decade history of lethal fires in the Bangladeshi garment industry, Sato (2012) proposed a contract framework that encourages manufacturers to adopt measures that reduce loss of life. Apart from the humanitarian imperative, the manufacturer has an incentive to sign the contract and adopt its preventative measures because an industrial disaster will cancel its relationship with its global retailer and end the related profits. This theoretical study specifies the optimal contract that incentivizes manufacturers and reduces the occurrence of garment industry fires.