What is the socially desirable thickness

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Question: Assume you are the President of British Petroleum (BP). You note that the Exxon Valdez spill cost

Exxon Corp. approximately $8 billion and conclude that if you have an accident you will have a similar cost. You are trying to decide on the thickness of the hull of your new supertanker. Your engineers tell you that the probability of an accident ever occurring (Pr(accident)) is inversely proportional to hull thickness in centimeters t. Specifically, P r(accident) = 0.002 . But the t costs of a thicker hull rise rapidly as the thickness rises. Costs (in million $) are given by C(t) = t2. What is the socially desirable thickness? If there is a probability of 10% that BP will not be found liable in case of accident, what will BP choose as a hull thickness?

Reference no: EM133322251

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