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Pricing Lives for Corporate Risk Decisions

36 Pages Posted: 11 Sep 2014  

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

Date Written: September 4, 2014

Abstract

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

Viscusi, W. Kip, Pricing Lives for Corporate Risk Decisions (September 4, 2014). Vanderbilt Law Review, May 2015, Forthcoming; Vanderbilt Law and Economics Research Paper No. 14-26. Available at SSRN: https://ssrn.com/abstract=2491735

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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