Corporate Risk Analysis: A Reckless Act?
Viscusi, W. Kip
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.
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