Economic Analysis of Social Issues 1st Edition by Alan Grant

Exercise 2

A 1awnmower manufacturer estimates that the probability of a fatal accident caused by the design of its product is 1/10,000 and that the value of a life lost is $1 million. The manufacturer can change the design to eliminate that chance for $80 per mower and stands ready to incorporate all cost-justified precautions. Will the manufacturer change the design? What would the benevolent social planner think about the manufacturer's decision if the true probability of a fatal accident is not 1/10,000 but 1/15,000?