A Better Measure for the Social Costs of Dangerous Products

Last Friday, the American University Washington College of Law and the Robert L. Habush Endowment of the American Association for Justice hosted a conference on emerging ideas in consumer product safety. CPR Member Scholar Sid Shapiro opened the day with a presentation of a new paper he’s written with Professors Ruth Ruttenberg (National Labor College) and Paul Leigh (UC-Davis).

Their paper is an empirical study of the “extended costs” economists typically overlook when tallying up the costs of personal injuries caused by dangerous products. Traditionally, economists use a “cost-of-illness” or “cost-of-injury” (COI) approach that takes into account direct costs (e.g., hospital bills, medical tests, rehabilitation) and indirect costs (e.g., lost earnings, lost value of home production, lost fringe benefits). Shapiro, Ruttenberg, and Leigh refine the traditional methodology by also accounting for the “extended” costs of injuries – things ranging from the cost of assisted living for the widower of a grandmother killed in an SUV rollover to the price of hotel and airfare for family members who attend the funeral.

The authors use three case studies to illustrate their new ideas: Ford SUVs with Firestone tires, the prescription drug Baycol, and three-wheeled ATVs. They chose these products because, in each case, enough information exists to make reasonable determinations about the number, type, severity, and distribution of injuries. Taking the available data and applying it to hypothetical situations, the authors explore how the traditional COI calculations greatly underestimate the real costs that accumulate when a family is harmed by a dangerous product.

For example, in the Ford/Firestone scenario, they work up a hypothetical situation involving a rollover that renders a 46-year-old father of two a permanent quadriplegic. His wife has to fall back to part-time work and his oldest child drops out of college to take on some care-taking responsibilities, his youngest child forgoes college, and the family loses a car and their home, ultimately forcing them to file for bankruptcy. The extended costs – which would have been ignored in a more traditional analysis – ran up to $733,254, based on costs of care-giving, forgone college educations, lost equity in the home, lost vacation, lost Social Security, and lost productivity due to care-taking burdens.

A scenario that might strike many of us an unthinkable horror story is an unfortunately common reality, according to the consumer advocates who worked on the real Ford/Firestone cases and were on Friday’s conference panel to discuss this paper. What’s more, several of the panelists noted that the authors’ calculations of extended cost were probably too low, as a result of conservative assumptions. They decided, for example, not to account for difficult-to-predict but likely-to-occur burdens such as inflation of medical costs over time, psychological trauma, or lost opportunities to do things like go to museums, movies, and sporting events.

In anticipation of this criticism, Shapiro, Ruttenberg, and Leigh close the paper with a stark reminder of the inherent limitations standard economics:

It is simply not possible to account for the permanent life-changing aspects of the tragedies associated with the three products we have studied. Psychological trauma and physical suffering are not measured, nor are other burdens that cannot be monetized. This limitation does not make these “costs” any less real to those who suffer them. An incalculable value of the tort system is to protect many families against the pain, grief, and suffering caused by dangerous products.  

Some other notes on the panel discussion:

David Michaels (GW-SKAPP) noted the common thread in the Ford/Firestone, Baycol, and ATV examples – each is a case of regulatory failure. If properly funded and given adequate statutory authority, NHTSA, FDA, and CPSC might have prevented the products from reaching consumers. But the agencies’ failures necessitated reliance on the tort system to get the products off the market.

Joanne Doroshow (Center for Justice and Democracy) noted that the paper takes an important step toward providing better answers to questions about how much dangerous products really cost society, and who is paying when dangerous products cause injuries. She highlighted the conclusion of the paper, which makes the important point that, without the tort system, many costs of dangerous products will be shifted to the public through Medicaid, Medicare, and Social Security.

Lucinda Finley (SUNY Buffalo Law) spoke about some of the “enjoyment-of-life” activities that are not addressed in the paper. She also focused on the danger of the “tort reform” movement: the costs of injury from dangerous products will continue to plague us, regardless of the tort system’s ability to shift those costs to manufacturers.

Neil Vidmar (Duke Law), who has done some empirical work of his own in the tort field, argued that the COI numbers were definitely on the low side, citing data he’s obtained about tort settlements in Florida. As an example, he noted that the authors estimated that a severe brain injury to a child cost $544,000; but he’s seen settlement payouts ranging from $672,000 up to $1.3 million.