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Business
Ethics MGT610
VU
LESSON
37
THE
SOCIAL COSTS VIEW OF THE MANUFACTURER'S
DUTIES
The
third theory of the duties
of the manufacturer extends
beyond what the other
two theories
impose.
It maintains that a manufacturer
must pay the costs of
any injuries sustained
through
any
defects in the product, even
when the manufacturer exercised due
care and took all
reasonable
precautions to warn users of
every foreseen danger.
This
theory, which forms the
basis of the legal doctrine
of strict liability, is utilitarian. It
says
that
the external costs of
injuries resulting even from
unavoidable defects constitute part of
the
cost
society must pay for
producing and using a product.
Having the manufacturer bear
these
costs
is the most efficient use of
society's resources: that way,
the price of the good will
reflect
its
real cost and it will not be
overproduced. Additionally, manufacturers
will take even greater
care
since they will be responsible for
paying for all of the
costs of injuries. When they
include
the
cost of injuries in the price of
the product, they also will be
distributing the real cost of
the
item
among all users, which is
more fair than making
just the unlucky injured
parties bear the
entire
cost of the injury
themselves.
The
major criticism of this
theory is that it is unfair
because it violates the
basic canons of
compensatory
justice: a person should not be
forced to compensate an injured
party if he or she
could
not have foreseen and prevented
the injury. Critics also
contend that the theory will
not
actually
reduce the number of accidents. Instead,
it may have the unintended
effect of
encouraging
carelessness in consumers, which
would cause even more
accidents. Finally, such
critics
argue that liability suits will
increase and impose heavy losses on
insurance companies,
forcing
insurance rates to rise
precipitously.
Social
cost theorists counter by pointing
out that, in reality, the
costs of consumer liability
suits
are
not large. Less than 1% of
product-related injuries result in
suits, and successful
suits
average
only a few thousand dollars
in any case. Moreover, the
insurance industry
has
remained
quite profitable, despite
the warnings of the
critics.
Advertising
Ethics
Advertising
is a huge industry, which
imposes great expense on manufacturers
and service
providers.
Commercial advertising is sometimes
defined as a form of "information" and
an
advertiser
as "one who gives
information." The implication is
that the defining function
of
advertising
is to provide information to consumers.
In the end, consumers must
cover the costs
of
advertising, but what do
they get for this extra
expenditure? Most consumers say
that they
get
very little. So is advertising a
waste, or a benefit? Does it
help or harm
consumers
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