September 29, 2015

Cheating Gets the Most Attention, but Doesn't Do the Most Damage

Tyler Cowen

Holbert L. Harris Chair of Economics at George Mason University
Summary

The behavior of Volkswagen has been heinous and the company and probably some of its executives deserve some serious punishments. Yet our reaction to the scandal is as illuminating as the misbehavior itself. We get much more upset when people do wrong out of deliberate fraudulent intent rather than through accidental negligence, or sheer inability to solve problems, even if the latter phenomena are often the greater risks.

Contact us
To speak with a scholar or learn more on this topic, visit our contact page.

The New York Times Room for Debate posted this question:

Has the pervasiveness of cheating made moral behavior passé?

Tyler Cowen provided the following response:

The behavior of Volkswagen has been heinous and the company and probably some of its executives deserve some serious punishments. Yet our reaction to the scandal is as illuminating as the misbehavior itself. We get much more upset when people do wrong out of deliberate fraudulent intent rather than through accidental negligence, or sheer inability to solve problems, even if the latter phenomena are often the greater risks.

The falsification of Volkswagen emissions software has meant more nitrogen oxide in the air, but how costly is this extra pollution in economic terms? One plausible estimate suggests this additional pollution has been killing 5 to 27 Americans each year, with that number worldwide reaching up to 404 as a maximum.

To put that number in context, the World Health Organization estimates that about seven million people die each year worldwide from air pollution. Even within the United States, early deaths from air pollution have been estimated to run about 200,000 a year, in comparison to which the losses from the Volkswagen scandal are a rounding error. For the American deaths, however, the culprits are often cars, trucks and cooking and heating emissions, so there is no single, evil, easily identified wrongdoer at fault. As Pogo recognized, often the real enemy is us.

Although the practice is ethically controversial, some economists believe we can attach dollar values to human lives. A typical value of life, estimated by this method, might run in the neighborhood of $7 million. That would mean Volkswagen has been destroying perhaps around $100 million in value a year. To put that number in context, a single Picasso painting can cost that much, or a Hollywood studio might spend (waste?) that much money marketing a single blockbuster movie.

Admittedly, the individuals and families who lose those lives don’t view the matter in such abstract, impersonal terms, but still if we had an extra $100 million we could save at least 5 to 27 lives through safety investments in other areas; in that sense the use of the figure is meaningful.

We need to ensure that deliberate corporate fraud does not spread, but in the meantime let’s not forget that is not always the biggest problem. It just bugs us more.