Magazine article Regulation

Risk Analysis

Magazine article Regulation

Risk Analysis

Article excerpt

"Pricing Lives for Corporate Risk Decisions," by W. Kip Viscusi. September 2014. SSRN #2491735.

In 2014, General Motors was fined $35 million by the National Highway Traffic Safety Administration (NHTSA), the maximum allowed under the law, for failure to report safety problems related to ignition switches. Those problems were associated with 13 fatalities. The consent decree released by NHTSA also revealed that GM had no internal systematic discussion of risk versus cost in the design of the switch.

For Vanderbilt economist Kip Viscusi, that fine is too low. NHTSA is permitted a fine of only $7,000 per violation and the total fine for a related series of violations is limited to $35 million. The value of a statistical life (VSL) used by the U.S. Department of Transportation (in which NHTSA exists administratively) to govern its decisions on the cost effectiveness of regulatory rules is $9.1 million. Thus, the 13 lives lost have an aggregate value of $ 118 million, which should have been the amount GM was fined. The estimated cost of the GM recall was about $100 million in 2007. If GM decisionmakers had faced the prospect of a $118 million fine or a $ 100 million recall, they would have chosen the recall to minimize the company's costs.

GM had no internal discussion of the costs and benefits of risk reduction because explicit discussions by auto companies in the past (e.g., Ford's infamous decision to adopt a less costly gasoline tank design for its Pinto subcompact) led to vilification by the press as well as punitive judgments by juries. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.