Wednesday, March 16, 2011

Robert Reich on the Learned Hand Rule

Reasonable precaution means spending as much on safety as the probability of a particular disaster occurring, multiplied by its likely harm to human beings and the environment if it does occur.
That's Robert Reich today using the Learned Hand rule to slam corporations. Citing GE's questionable Mark 1 boiler reactor (the same used in TEPCO's Fukushima Daiichi plant), Reich argues in favor of more regulation.
Profit-making corporations have every incentive to underestimate these probabilities and lowball the likely harms.
I'm not really sure why he thinks regulators have the all the right incentives. After all, they're not getting paid very much compared to private sector workers so they should be pretty easy to bribe.

If companies are taking too many risks (and to be sure it would be the company which bought and used the reactor who's taking too many risks, not the company which sold it), then it sounds like they are not internalizing the costs of their recklessness. Maybe regulators are the way to go, maybe stronger negligence rules are. Maybe nothing is needed at all since nuclear accidents are incredibly rare and it took a major earthquake to create one. Just because the most recent natural disaster caused problems doesn't mean companies are under-estimating the probability of the problem.

Update The size of the earthquake was completely unprecedented. Hard to blame the Japanese power company for not predicting the future.