[facetube]

"A new car built by my company leaves somewhere traveling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one."

That's why.

[computator]

> Should we initiate a recall? Take the number of vehicles in the field, A, multiply by ...

Did you pick that example because of the Ford Pinto case? In case you didn't know about it, that's exactly the cost/benefit analysis that Ford did when they discovered that the gas tank on the Pinto would rupture if the car was hit from behind at 31 mph or greater. Here's the infamous internal memo:

http://lawprofessors.typepad.com/tortsprof/files/FordMemo.pd...

Look at Table 3 on page 6. Paying $200,000 per death would cost $49.5 million. Strengthening the tank at $11 per car would cost $137 million. Clearly it was cheaper to pay settlements on the deaths.

[mmirate]

> Clearly it was cheaper to pay settlements on the deaths.

That merely shows that tort settlements at that time didn't have an accurate price on human life. $200,000 is about $1.13 million in today's money, which is only about 7 years of senior-dev salary. An early death usually costs more than 7 years of healthy life.

If we assume that the median car-fire death actually had 20 years of healthy life ahead of them, instead of 7, then we can conclude that typical settlements should have cost about $500,000 (in the same 1973 money) instead of $200,000.

This would have raised the total tort cost estimate to $123 million, at which point the two figures are close enough that the entire discussion would have ceased to be worth the amount of C-level labor that must have gone into it.

(The above also assumes that one's own life is worth as much as one can earn prior to death-by-natural-causes. I have yet to find evidence to disprove this hypothesis with respect to my own life ... but some people feel that life is even more valuable. If those people were to perform the same process as I did above, then their conclusion would be even more powerful than mine.)

When you underprice something you have, don't be surprised to find yourself in a drastic shortage of it.

[daviross]

I believe that specific wording is also an exact line out of _Fight Club_

[facetube]

Yep, that's the one.

[dsfyu404ed]

That doesn't hold as much water when victim is the same party that would be paying for the recall. With social issues like crime society is both the victim and paying for the settlements/recall. Resources are not infinite (eventually you run out of other people's money). I want society to spend the resources I have to give it as effectively as possible. If that means paying settlements then I'm all for paying settlements.

[logfromblammo]

This quote always brings to my mind the Ford Windstar.

Now, they did do a recall for a problem with the cruise control cutoff switch possibly leaking brake fluid. But not included in that recall was any damage that leaked brake fluid might have done to the anti-lock brake control module, or any of the other electronic or electrical components located beneath the potential leak site.

Such parts can be corroded by leaked brake fluid, causing electrical shorts and burnt-out components. And the brake fluid is itself quite flammable. Your Ford Windstar can burst into flames while you are at speed on a highway. Or it could simply light itself on fire sitting unattended in your driveway and turn itself into a total loss. Most of the time, it just drains its own battery or kills all the instrument gauges in the dashboard.

No recall for this problem. And yet, the vehicle has already had several previous recalls, including one for the rear axle potentially breaking in half. This leads me to believe that there is another term, D, for the estimated dollar amount for a loss to brand value due to doing another recall.

But then again, "Found on Road, Dead" didn't come from nowhere, so I'm not sure how much value is left there.

[mmirate]

Indeed, the need for that extra term is part of the sloppiness that I identified in another comment here.

[mmirate]

I don't see how that answers my question.

That logic is exactly the rational thing to do, provided that settlements are the only consequence of that flaw.

If, on the other hand, this being the real world, there is some probability that customers will discover this flaw (e.g. reading a news article about such a crash-and-burn) and thereby demand fewer cars, causing fewer or cheaper sales ... then that also affects the calculation.

So, aside from this quote representing some degree of sloppiness, which can't be solved with "morality" ... I don't see the problem here.

[facetube]

Yes, ignoring all moral and ethical externalities – things that are important to human beings – does indeed make economics easier to fake on the internet. Letting people die in foreseeable fiery crashes, however, is not how an organized civil society deals with product defects that put lives at risk. It is immoral to do so: a concept which actually does exist, no matter how hard you sarcastiquote it.

Your proposed framework would make for a silly Ayn Rand book or two, but little more.

[mmirate]

> things that are important to human beings

If they were important, then there would be economic value to them.

(And to some extent this is in fact the case: even once the de Havilland Comet's metal-fatigue issues were compensated-for and recalls completed, nobody wanted to fly on it, so it became a commercial flop, and now the air-transport leader is Boeing not de Havilland.)

[sincerely]

>If they were important, then there would be economic value to them.

What justifies this statement? It seems nearly mind-bogglingly false to me so I would be interested to hear support for it.

[mmirate]

The interaction between demand and prices is an important part of the intrinsic signaling mechanism that a free market provides.

If there are two alternate (competing) goods, and one is cheaper but the other is "Produced Ethically in Accordance with X Standards", then each person chooses whether that certification - and the qualitative difference it signifies - matters to them enough to pay the difference in price between that product and its cheaper competitor.

Or, to use another example elsewhere in this thread: if someone is in the market for a car, and one of the cars that meets their criteria is the Pinto, then it is up to them to decide whether the reduction-of-risk of fuel combustion justifies buying a more expensive vehicle that isn't a Pinto.

In either case, the macro-level effect will be that some portion of customers will buy the inferior product, and some will buy the superior product, and if there is sufficient disparity in the quantity-demanded, then the suppliers have greater incentive to produce the product with the higher quantity-demanded (but any quantitative mismatch between supply and demand will cause temporary fluctuations which will quickly self-correct, preserving the equilibrium in the long run). Ergo, if a good is superior in some way such that that superiority is "important", then that good will outsell any competition that lacks that quality.

[facetube]

Here comes the "everyone is always a fully-informed consumer" trope. Practically a religion at this point.

How do you think Ford communicated with pre-sale consumers re: their product's inadequately reinforced rear end, insufficient crumple zone, "essentially ornamental" rear bumper, and increased risk of death secondary to fire or combustion? Under your scheme, how do consumers who wish to avoid death by fire learn of these defects? What economic interest does Ford have to disclose the problem if the deaths are cheaper than fixing it?

"In the [Pinto] memo, Ford estimated the cost of fuel system modifications to reduce fire risks in rollover events to be $11 per car across 12.5 million cars and light trucks (all manufacturers), for a total of $137 million. The design changes were estimated to save 180 burn deaths and 180 serious injuries per year, a cost to society of $49.5 million."

[facetube]

So if there's no economic value attached to something, you consider it unimportant by definition? Wow.

[mmirate]

Well, in these modern times, we call any mechanism which allocates scarce (ergo valuable) resources, an "economy".

Thus, the "economic" in "economic value" is actually redundant.

And if something has no value, to anyone ... what importance could it have?

(except perhaps in the history books, e.g. the now-bloodstained clothes that Archduke Franz Ferdinand of Austria wore when he was assassinated)

This seems rather elementary/tautological/Econ-101 to me.

[facetube]

> This seems rather elementary/tautological/Econ-101 to me

If it does, it's only because you're deliberately engaging in tautology.

Not all human value can be expressed in monetary terms. At a minimum, market forces cannot and will not raise the dead any time soon. In death there is no recourse that will make you whole. No amount of money will restore the value to you. That's why regulation and prevention exists – because the market can't cheat death.