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Business and its Environment

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Bluebird Smelter

Bluebird Smelter is owned by a large, national mining company and located in Bluebird, a town of 12,000 in western Montana. The smelter, which has been operating profitably for 35 years with 125 employees, processes copper ore arriving by railroad.

Bluebird Smelter is the only major industrial pollution source in the valley. On sunny days when the air is still and during periods of temperature inversion over the valley, the action of the sun on smelter emissions contributes to photochemical smog similar to that in urban areas. Auto emissions and agricultural activities are also sources of photochemical oxidants, but smelter emissions are far more important.

A group of economists from a prestigious research institute in another city picked the Bluebird Smelter as a test case for a research project on the health effects of pollution. The figures they produced led to debate among the various local groups involved in the controversy. The researchers looked at the operation of Bluebird Smelter in terms of costs and benefits to the community and to society. The following table shows their basic calculations.

BenefitsValue
Payroll for 125 employees at an average of $15,000 each$1,875,000
Benefits paid to workers and families at an average of $1000 each125,000
Income, other than wages and salaries,
generated in the valley by the company
4,600,000
Local taxes and fees paid by the company100,000
Social services to community and charitable contributions20,000
Total: $6,720,000
Costs
Excess deaths of 5 persons at $1 million each*$5,000,000
Other health and illness costs to exposed population450,000
Crop and property damage from pollutants1,000,000
Reduction of aesthetic value and quality of life500,000
Lost revenues and taxes from tourism500,000
Total: $7,450,000
*Calculated on the basis of recent court decisions compensating victims of wrongful death in product liability cases in Western states. The figure reflects average compensation.

The Earth Riders (a small local environmental group) seized upon the study, arguing that if total costs of smelter operation exceeded benefits, then a clear-cut case had been made for closing the plant. It was already operation at a loss; in this case a net social loss of $730,000. Thus, in the eyes of the environmentalists Bluebird Smelter was in social bankruptcy.

The smelter's managers and members of the Bluebird City Council, on the other hand, ridiculed the study for making unrealistic and overly simplistic assumptions. They questioned whether the costs were meaningful, citing estimates of the value of a human life that were much lower than $1 million, made by other economists. They argued that the health risks posed by the smelter were less than those of smoking cigarettes, drinking, or riding motorcycles and that benefits to the community were great. They even suggested that important costs had been left out of the calculations such as sociological and psychological costs to workers who would be laid off if the plant closed.

Questions

1. Analyze the costs and benefits enumerated in the table above. Are there items that belong on this list but aren't included? Are there items on the list that should be taken off?

2. When making public policy decision, do you think a dollar value should be placed on human life? If your answer is no, how do you decide whether to spend an extra $100 million on highway safety? If your answer is yes, how do you decide how much a human life is worth?

3. Suppose it is true that the health risks posed by the smelter were less than those of smoking cigarettes. Does that mean that the smelter should not be closed down? that cigarettes should be banned?

4. Is the decision whether or not to close Bluebird Smelter the kind of decision that should be made by cost-benefit analysis?


This case is extracted from a longer case by the same name. It was written by George A. Steiner and John F. Steiner for 'Issues in Business and Society'.

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