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Pricing Lives for Corporate Risk Decisions

Posted by on Friday, May 15, 2015 in Articles, Volume 68, Volume 68, Number 4.

Pricing Lives for Corporate Risk Decisions


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 should place a greater value on lives at risk than they have in previous risk analyses and that they should receive 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 defectrelated deaths may, however, be even greater than that of preventing fatalities through safety improvements; accordingly, the value of a statistical life may establish a floor, rather than a ceiling, for the appropriate penalties for safetyrelated defects.


University Distinguished Professor of Law, Economics, and Management at Vanderbilt University, Co-director of the Ph.D. Program in Law and Economics. Benjamin McMichael provided excellent research assistance, and law review editors Mary Fleming, Robin Frazer, Jean Xiao, Courtney Mitchell, and Daniel Hay provided valuable suggestions.