Is the GM recall scandal an “availability cascade”?

I have dug deeper into the numbers and have found nothing to cause me to change my mind about my conclusion yesterday that GM may well have acted reasonably, and certainly that it is premature to conclude that it acted in a scandalous, criminal, or unreasonable fashion. A student of mine produced this spreadsheet, which makes clear that GM’s culpability depends on how soon it understood the problem. If within the first few years, then yes. If after 5 or 6 years, then probably not. (Her spreadsheet is based on my assumptions from yesterday, which are–caveat emptor–possibly dubious, plus she extends the time frame out another 10 years to consider cars manufactured just before the recall. She also treats this as an NPV exercise based on expected tort liability rather than a cost-benefit analysis but the conclusion would be the same assuming that the assumed tort awards reflect statistical valuation of life.) Until it is clearer who knew what when, one cannot determine whether GM acted wrongfully (in the sense of causing harm to people; it’s impossible to deny that their cars are crappy however safe they may be). I’m afraid it probably won’t be clear for years, until after lawsuits and investigations are concluded.

Cass Sunstein and Timur Kuran wrote a fine paper in 2007 that discusses regulatory panics based on what they call “availability cascades”–where some high-profile corporate misfeasance that feeds into people’s anxieties causes an enormous scandal despite no evidence that it harmed anyone. The most famous case is Love Canal, which harmed no one. Another is Alar. Also read this paper on the ¬†Ford Pinto scandal by Gary Schwartz.The Pinto case was another regulatory panic where fears greatly outstripped the real harm and wrongdoing. The common elements in all these examples are (1) sympathetic victim groups who effectively work the media, (2) opportunistic politicians and commentators, and (3) lazy journalists.