Corporate Risk Analysis: A Reckless Act?

Posted: 21 Aug 2000  

W. Kip Viscusi

Vanderbilt University - Law School; National Bureau of Economic Research (NBER); Vanderbilt University - Department of Economics; Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Strategy and Business Economics

Abstract

Balancing of risk and cost lies at the heart of standard negligence tests and policy analysis approaches to government regulation. Notwithstanding the desirability of using a benefit-cost approach to assess the merits of safety measures, in many court cases juries appear to penalize corporations for having done a risk analysis in instances in which the company decided not to make a safety improvement after the analysis indicated the improvement was unwarranted. Automobile accident cases provide the most prominent examples of such juror sanctions. This paper tests the effect of corporate risk analyses experimentally by using a sample of almost 500 juror-eligible citizens. Each individual considered an automobile accident scenario, but these scenarios differed in terms of whether the company undertook a risk analysis and in terms of the nature of the risk analysis. Somewhat surprisingly, even sound benefit-cost analyses of safety measures did not reduce the likelihood of punitive damages. If a company follows the procedures used by government agencies and uses a higher value of life in its analyses, the penalty levied on the corporation Increases. Internal use of higher value of life numbers serves as an anchor that boosts rather than reduces jury awards.

Suggested Citation

Viscusi, W. Kip, Corporate Risk Analysis: A Reckless Act?. Stanford Law Review, Vol. 52, No. 3, 2000. Available at SSRN: https://ssrn.com/abstract=237350

W. Kip Viscusi (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States
615-343-7715 (Phone)
615-322-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vanderbilt University - Department of Economics

Box 1819 Station B
Nashville, TN 37235
United States
(615) 343-7715 (Phone)
(615) 343-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States
(615) 343-7715 (Phone)
(615) 343-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States

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