Pricing Lives for Corporate Risk Decisions
36 Pages Posted: 11 Sep 2014
Date Written: September 4, 2014
The 2014 GM ignition switch recall highlighted the inadequacies of the company’s safety culture and the shortcomings of regulatory sanctions. The company’s inattention to systematic thinking about product safety can be traced to the hostile treatment of corporate risk analyses by the courts. This Article proposes that companies place a greater value on lives at risk than they have in previous risk analyses and that they be given legal protections for product risk analyses. Companies’ valuations of fatality risks and regulatory penalties have priced lives too low. The guidance provided by the value of a statistical life, which is currently $9.1 million for transportation policies, establishes an appropriate price for lives from the standpoint of corporate safety decisions, regulatory sanctions, and punitive damages. The valuation of defect-related deaths may, however, be even greater than that of preventing fatalities through safety improvements so that the value of a statistical life may establish a floor for the appropriate penalties for safety-related defects.
Keywords: GM ignition-switch recall, value of statistical life, product defect, risk analysis, regulatory penalties, punitive damages, safety, VSL
JEL Classification: K13, K32, J16, I30, D80
Suggested Citation: Suggested Citation