Cost Benefit Analysis of Consumer Product Safety Standards

Abstract

This paper investigates the role of cost‐benefit analysis in evaluating consumer product safety standards and applys such analysis to an evaluation of flammability standards for children's sleepwear. The cost of safety standards includes the costs of standard development and enforcement and the changes in producer and consumer surpluses due to product regulation. The benefits from safety standards are the reduction in product accidents and the direct and indirect costs of such accidents. The cost of the O‐6X Children's Sleepwear Standard was based on the change in consumer surplus since it was assumed that supply was perfectly elastic. The benefits were due primarily to the reduction in burn injuries. Cost‐benefit ratios ranged from 0.62 to 0.84 assuming that the standard provided 100% protection. The cost‐benefit ratios also indicate the degree of protection required by the standard. Thus a ratio of 0.62 implies that 62% protection is required if benefits are to equal costs.