Flying the Friendly Skies? of us hop into our car with little thought for our pe
ID: 1193111 • Letter: F
Question
Flying the Friendly Skies? of us hop into our car with little thought for our personal safety, beyc on scheduled grocery store ing, if not downright fear st of us hop in Mosnd perhaps the act of putting on seat belts. Yet even though travel eduled, commercial airlines is safer than driving to work or to the store, many people approach air travel with a sense of forebod- If we were to think carefully about the wisdom of traveling 600 hour in an aluminum tube 7 miles above the earth, several miles per hour in a on s might come to mind. How safe is this? How safe should it be? Because the interest in making a buck ignore our interest in making it home in one ncIs some form of government regulation the only way to ensure safety in the skies? THE EcONOMICS OF SAFETY rld of scarcity, which implies that to get more of any good, we must and more enjoyably), but achieving it also entails costs (we must give The science of economics begins with one simple principle: We live in a wor crific e some of other goods. This is just as true of safety as it is of piz- sa zas or hairc uts or works of art. Safety confers benefits (we live longer up something to obtain that safety). As the degree of safety rises, the total benefits of safety rise, but the marginal (or incremental) benefits of additional safety decline. Consider a simple example: Adding exit doors to an airplane increases the number of people who can escape in the event of an emergency evacuation. Nev- ertheless, each additional door adds less in safety benefits than the previ- ous one. If the fourth door enables, say, an extra ten people to escape, the fifth may enable only an extra six to escape. (If this sounds implausible, 17Explanation / Answer
Whenever a business produce some commodities and sale it to the customers it aims at meximizing profit. Modern economist believes that instead of maximizing profit you have to maximize value. Value is something which a firm can earn over and above the minimum rate of return.
Sometimes it is observed that a firm in an attempt to maximize value ignores different issues like quality of the product, safety aspect, externailty effect etc. As a result it causes harm to the society. It should be remembered that everyone belongs to a society. If they do damage to the society then it will not cause ultimately any good to him in the long run. All these acts are ethically unjustified. So he firm has to maintain an expected level of ethical standard at any cost. Keeping that ethical standard if the firm can achieve its value maximizing goal, then it will do justice to everyone.
Thus it generally appears that there is a clash between economic objective and etihical issue. In a travel by train or plane, ethical issue is to provide adequate safety. But spending huge money on safety will mean cost of the firm is escalating. Hence the firm will earn inadequate profit. Its economic objective will be violated.
Consider another example when a firm has established a factory. It produces obnoxious gases and pollutes air of the locality. This gas will create harm to the health of the local people. Disease will spread. They will spend heavy amount on medicine for recovery of health. This pollution can be prevented by spending huge money to arrange for their prevention. But this cost will be unbearable to the firm as it will convert it to a loss making firm. Hence from economic aspect such huge expenditure is not desirable. Thus there exist a clear clash between economic objective and ethical issues.
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If you think rationally then the clash will not persist. How much ethical standard firm is expected to maintain is the most vital issue. When you travel a train or fly in a plane, ethical point requires that you expect highest level of safety so that possibility of accident is zero. In reality you cannot ensure 100% safety. There will be many factors which will add uncertainty to the environment. Titanic ship when built was considered as the safest ship to travel. But it caused accident and resulted into a death of the most of the passengers. Similarly in a plane travel possibility of terrorist attack can be minimized but it cannot be guaranteed that it will be nil. Hence you have to introduce adequate safety and preventive measures which is ethically justified.
In order to maintain this ethical standard, economist has provided a rational theory. It has stated that firm will consider the marginal cost of introducing one unit extra safety measure. This extra cost will be compared with the extra benefit that society will receive. If marginal benefit is more than marginal cost, then the safety measure should be arranged. Otherwise it will be ethically wrrong.
In reverse case it will not add any extra welfare as firm is forced to reduce its profit. Ultimately it will affect future productivity and ivestmet. Societys growth will be slowed down.Welfare i the long run will not improve. So society should not force a firm to spend money on welfare or safety when cost is more than incremental benefit. So fulfilment of this condition will mean clash between ethical aspect and economic aspect will be removed.
Government has a very important role in this respect. If a firm does not maintain its ethical standard then government can impose fine or cost to recover the excess of marginal benefit over marginal cost. This imposition through legal action will make the firm careful about the maintenance of ethical standard. Also legal guidelines will be framed which will be mandatory for every firm to follow.
Thus compliance of economic rule of equality of incremental cost and incremental benefit can easily remove the clash between ethical issues and economical issues.