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From: bl@hplabsb.UUCP
Newsgroups: net.aviation
Subject: Re: Product liability
Message-ID: <3219@hplabsb.UUCP>
Date: Mon, 6-Jan-86 18:53:54 EST
Article-I.D.: hplabsb.3219
Posted: Mon Jan  6 18:53:54 1986
Date-Received: Tue, 7-Jan-86 19:18:00 EST
References: <957@terak.UUCP> <3105@sun.uucp>
Distribution: na
Organization: Hewlett Packard Labs, Palo Alto CA
Lines: 14

> If one views the product liability cost as a fixed overhead ($X/year),
> then the cost gets amortized over all the product produced in a given
> year.  In this case, even if a large award is made on only high-performance
> planes, we'll still see effects on the price of simpler ones.

Actually, it's worse than that.  If a manufacturer produces n units per
year, he must amortize his liability insurance over n units for the first
year.  However, in the second year, again assuming he produces n units,
he must amortize the cost of 2n units over n units.  In the third year
it will be 3n units amortized over n units.  The units produces in prior
years must still be insured even though the manufacturer no longer realizes
income from them.  Thus the more succesful a product is and the longer
the manufacturer is in business, the greater his liability exposer becomes
and the higher the cost for the consumer becomes.