Sacrificing Civil Liberties to Reduce Terrorism Risk

The results of a survey conducted by Viscusi and Zeckhauser demonstrate that targeted screening of airline passengers raises conflicting concerns of efficiency and equity. Support for profiling increases if there is a substantial reduction in avoided delays to other passengers. The time cost and benefit components of targeting affect support for targeted screening in an efficiency-oriented manner. Nonwhite respondents are more reluctant than whites to support targeting or to be targeted. Terrorism risk assessments are highly diffuse, reflecting considerable risk ambiguity. People fear highly severe worst-case terrorism outcomes, but their best estimates of the risk are more closely related to their lower bound estimates than their upper bound estimates. Anomalies evident in other risk perception contexts, such as hindsight biases and embeddedness effects, are particularly evident for terrorism risk beliefs.

Addressing Catastrophic Risks: Disparate Anatomies Require Tailored Therapies

Catastrophic risks differ in terms of their natural or human origins, their possible amplification by human behaviors, and the relationships between those who create the risks and those who suffer the losses. Given their disparate anatomies, catastrophic risks generally require tailored therapies, with each prescribed therapy employing a specific portfolio of policy strategies. Given that catastrophic risks occur rarely, and impose extreme losses, traditional mechanisms for controlling risks--bargaining, regulation, liability--often function poorly. Commons catastrophes arise when a group of actors collectively impose such risks on themselves. When the commons is balanced, that is, when the parties are roughly symmetrically situated, a range of regulatory mechanisms can perform well. However, unbalanced commons--such as exist with climate change--will challenge any control mechanism with the disparate parties putting forth proposals to limit their own burdens. When humans impose catastrophic risks predominantly on others--as with deepwater oil spills--the risks are external. For those risks, the analysis shows, a single responsible party should be identified. Primary emphasis should then be placed on a two-tier liability system. Parties engaged in activities posing such catastrophic risks would be subject to substantial minimum financial requirements, strict liability for all damages, and a risk-based tax for expected losses that would exceed the responsible party's ability to pay. Utilizing the financial incentives of this two-tier liability system would decrease the current reliance on regulatory policy, and would alter the role of regulators with a tilt toward financial oversight efforts and away from direct control. Catastrophic risks will always be with us. But as rare, extreme events, society has little experience with them, and current mechanisms are poorly designed to control them. Only a tailored therapy approach offers promise of significant improvement.

National Survey Evidence on Disasters and Relief: Risk Beliefs, Self-Interest, and Compassion

A nationally representative sample of respondents estimated their fatality risks from four types of natural disasters, and indicated whether they favored governmental disaster relief. For all hazards, including auto accident risks, most respondents assessed their risks as being below average, with one-third assessing them as average. Individuals from high-risk states, or with experience with disasters, estimate risks higher, though by less than reasonable calculations require. Four-fifths of our respondents favor government relief for disaster victims, but only one-third do for victims in high-risk areas. Individuals who perceive themselves at higher risk are more supportive of government assistance.

The Perception and Valuation of the Risks of Climate Change: A Rational and Behavioral Blend

Over 250 respondents, graduate students in law and public policy, assessed the risks of climate change and valued climate-change mitigation policies. Many aspects of their behavior were consistent with rational behavior. For example, respondents successfully estimated distributions of temperature increases in Boston by 2100. The median value of best estimates was 1-3 degrees Fahrenheit. In addition, people with higher risk estimates, whether for temperature or related risks (e.g., hurricane intensities) offered more to avoid warming. Median willingness to pay (WTP) to avoid global warming was $0.50/gallon, and 3% of income. And important scope tests (e.g., respondents paid more for bigger accomplishments) were passed. However, significant behavioral propensities also emerged. For example, accessibility of neutral information on global warming boosted risk estimates. Warming projections correlated with estimates for unrelated risks, such as earthquakes and heart attacks. The implied WTP for avoidance was much greater when asked as a percent of income than as a gas tax, a percent thinking bias. Home team betting showed itself; individuals predicting a Bush victory predicted smaller temperature increases. In the climate-change arena, behavioral decision tendencies are like a fun-house mirror: They magnify some estimates and shrink others, but the contours of rational decision remain recognizable.

Deterring and Compensating Oil Spill Catastrophes: The Need for Strict and Two-Tier Liability

The BP Deepwater Horizon oil spill highlighted the glaring weakness in the current liability and regulatory regime for oil spills and for environmental catastrophes more broadly. This article proposes a new liability structure for deep sea oil drilling and for catastrophic risks generally. It delineates a two-tier system of liability. The first tier would impose strict liability up to the firm's financial resources plus insurance coverage. The second tier would be an annual tax equal to the expected costs in the coming year beyond this damages amount. A single firm will be identified as responsible for generating the risk. It would be required to demonstrate substantial ability to pay in the first tier before being permitted to engage in the risky activity. This structure provides for efficient deterrence for environmental catastrophes, since the responsible party is bearing in expectation the risks it is imposing. It also addresses the challenges posed by the fat-tailed distributions of catastrophic environmental risks and provides for more assured and adequate compensation of potential losses than current liability and regulatory arrangements.

Policy Relevant Heterogeneity in the Value of Statistical Life: New Evidence from Panel Data Quantile Regressions

We examine differences in the value of statistical life (VSL) across potential wage levels in panel data using quantile regressions with intercept heterogeneity. Latent heterogeneity is econometrically important and affects the estimated VSL. Our findings indicate that a reasonable average cost per expected life saved cut-off for health and safety regulations is $7 million to$8 million per life saved, but the VSL varies considerably across the labor force. Our results reconcile the previous discrepancies between hedonic VSL estimates and the values implied by theories linked to the coefficient of relative risk aversion. Because the VSL varies elastically with income, regulatory agencies should regularly update the VSL used in benefit assessments, increasing the VSL proportionally with changes in income over time.panel data, quantile regression, VSL, value of statistical life, fixed effects, PSID, fatality risk, CFOI

Taming Blockbuster Punitive Damages Awards

Blockbuster punitive damages awards ie those awards exceeding 100 million attract attention based on their sheer size While there have been fewer such awards in the last decade they remain an important presence in the legal landscape Taking notice of these and other large punitive damages awards courts and state policymakers have taken steps to both constrain them and render them more predictable States have enacted punitive damages caps to limit the amount of punitive damages courts can award but these caps often contain a number of exceptions and apply only to damages under a specific state\u27s law At a broader level the Supreme Court has announced a general limitation on punitive damages under the Due Process Clause of the Fourteenth Amendment which applies to all cases and contains very few exceptions Under State Farm v Campbell punitive damages awards that exceed the accompanying compensatory award by more than a factor of ten will generally violate due process However this limit is substantially higher than the punitive damages caps that some states have put in place This Article provides the first empirical analysis of the effect of state punitive damages caps on blockbuster awards and offers the first comparison of the effect of these reforms with the effect of the Supreme Court\u27s current constitutional doctrine on punitive damages Understanding the roles of these legal regimes in how the largest punitive damages awards are imposed provides unique insight into how different factors affect courts\u27 decisions to award punitive damages Relying on this insight as well as previously developed empirical evidence we argue that it is time for a new constitutional doctrine on punitive damages In particular we argue that the Supreme Court should incorporate the lessons learned from the different effects of state punitive damages caps to lower the limit placed on punitive damages under the Due Process Clause For cases involving financial loss punitive awards more than three times the size of the accompanying compensatory award will generally violate due process For cases involving severe injuries such as wrongful deaths the total value of punitive damages and compensatory damages should not exceed economic estimates of the value of a statistical life which is an economic deterrence measure This proposed structure would better achieve the Court\u27s goal of returning predictability to punitive damages awards blockbuster and otherwis

The Specific Consumer Expectations Test for Product Defects

In this Article, we propose that courts adopt an amended version of the consumer expectations test that we call the “specific consumer expectations test.” The specific consumer expectations test would apply to any product or product component for which consumers have clear, articulable ex ante expectations about the function of the product. Under the specific consumer expectations test, a defendant is liable if consumers expected such a product to reduce a particular risk, and the product in fact increased that risk. Similarly, if a product was intended to convey a particular benefit, but in fact harmed consumers along the same dimension, the test is violated. For example, if defective airbags increased the risk of injury after a motor-vehicle crash rather than decreased the risk, that product would be deemed defective under the specific consumer expectations test. By shifting the law’s focus from measuring the magnitude of consumer expectations to a simpler identification of the direction that consumers expected risks to change, the specific expectations test increases the administrability of products liability law and captures most of the incentives that the traditional consumer expectations test could theoretically provide. In particular, firms are incentivized to produce products that never increase risks unexpectedly, and consumers are empowered to purchase products which reflect their willingness to pay for risks. In cases where consumers lack specific expectations, we argue that courts should apply the risk-utility test to minimize unanticipated accident costs to consumers and firms. We bolster our analysis with a novel experiment that demonstrates that the specific expectations test is consistent with the preferences of actual consumers. Our incentive-compatible experiment asked subjects to make consumption decisions over various risky products and determine punishments for the firms that manufacture defective products. The results reveal that individuals demand substantially greater punishments for firms that manufacture products that violate specific expectations. But, before the defect has manifested, consumers are willing to tolerate prospective defect risks in general as well as defects that would cause a product to perform the opposite of its intended function. It is after the defect has occurred that consumers display greater outrage with respect to product defects that impose harms that are the opposite of the intended function of the product or product component. Taken together, these results indicate that the specific expectations test would deter manufacturers from making defective products in the exact circumstances where consumers suffer the greatest harms from product defects, and the test would permit consumers to choose when to consume dangerous products without producers risking ex post liability

Policy Relevant Heterogeneity in the Value of Statistical Life: New Evidence from Panel Data Quantile Regressions

We examine differences in the value of statistical life (VSL) across potential wage levels in panel data using quantile regressions with intercept heterogeneity. Latent heterogeneity is econometrically important and affects the estimated VSL. Our findings indicate that a reasonable average cost per expected life saved cut-off for health and safety regulations is $7 million to$8 million per life saved, but the VSL varies considerably cross the labor force. Our results reconcile the previous discrepancies between hedonic VSL estimates and the values implied by theories linked to the coefficient of relative risk aversion. Because the VSL varies elastically with income, regulatory agencies should regularly update the VSL used in benefit assessments, increasing the VSL proportionally with changes in income over time

Worker Learning and Compensating Differentials

In the standard compensating wage differential model, workers value their wage and workers\u27 compensation components based on full job risk information. Market forces generate positive wage differentials as ex ante compensation for exposure to relatively high risk. Similarly, market forces generate wage offsets for the increases in ex post risk compensation embodied in workers\u27 compensation benefits. These predictions can be modified to take into account potential imperfections in worker information, as in Viscusi (1979a,b, 1980a,b,d), where the role of learning is incorporated into the worker\u27s decision model. The potential for learning about risks introduces a new market response through worker quitting after the acquisition of adverse risk information. In a full information world, after controlling for health status, no unexpected job risk-quit relationship will be observed. In the more realistic sequential decision model in which there is an opportunity for learning, the acquisition of adverse new information by the worker on the job may lead the worker to quit. With the exception of the experimental results reported in Viscusi and O\u27Connor (1984), in which worker responses to alternative chemical labels were monitored, tests of the standard compensating differential model and of the learning models have been distinct, as each focuses on a different aspect of labor market behavior. The empirical evidence supporting compensating risk differentials is substantial: greater job risks boost worker wages, and workers are willing to accept a wage cut in return for higher workers\u27 compensation benefits.\u27 These results are the main predictions of the standard compensating differential theory, and they continue to hold if learning is introduced. Market tests of the role of worker learning, on the other hand, have focused on two other empirical issues-the effect of injury experiences on workers\u27 risk perceptions and the positive effect of job risks on worker quitting. The focus of this paper is broader than that of separate analyses of the wage and quit effects of job risks because we use the relationships typically estimated and tested in the standard compensating differential theory to examine the job risk-learning model as well. In particular, using a large data set on workers in the early 1980s, we evaluate the trade-offs between wages and workers\u27 compensation benefits and between wages and risks implied by worker quit behavior, and compare these trade-offs across worker tenure groups