Two Famous Corporate Memos: World Bank Pollution & The Ford Pinto I. Cost-Benefit Analysis: World Bank Pollution
Question:
Two Famous Corporate Memos:
World Bank Pollution & The Ford Pinto
I. Cost-Benefit Analysis: World Bank Pollution Memo
Memo from Lawrence Summers, the CEO of World Bank: “Just between you and me, shouldn’t the World Bank be encouraging more migration of the dirty industries to the LDCs [less developed countries]? . . . The measurement of the costs of health-impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health-impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that.”
II. Cost-Benefit Analysis: The Ford Pinto
“[At] a top secret site, more than forty times and . . . every test made at over 25 mph without special structural alteration of the car . . . resulted in a ruptured fuel tank.
“[A] later Ford Company study released by J. C. Echold, director of automotive safety for Ford, claimed that an improved design that would have rendered the Pinto … less likely to burst into flames on collision would not be cost-effective for society . . . the costs of the design improvement ($11 per vehicle) far outweighed its social benefits:
BENEFITS:
Savings: 180 burn deaths, 180 serious burn injuries, 2100 burned vehicles.
Unit Cost: $200,000 per death, $67,000 per injury, &700 per vehicle.
Total Benefits: (180 x $200,000) + (180 x $67,000) + (2100 x $700) = $49.53 million
COSTS:
Sales: 12.5 million vehicles
Unit Cost: $11 per vehicle
Total Costs: 12,500,000 x $11 = $137.5 million
Answer These Questions
“Ford and World Bank Memos”:
a. According to the World Bank, what should be done with toxic waste and why?
b. According to the Ford memo, how much is the life of, say, your child worth if she were killed in a fiery car crash? How much would it have cost to fix the Pinto? Summarize what this spokesman must mean by “cost effective for society”?
Business Statistics a decision making approach
ISBN: 978-0133021844
9th edition
Authors: David F. Groebner, Patrick W. Shannon, Phillip C. Fry