Game Theory in Grimshaw v. Ford Motor Case
The Grimshaw v. Ford Motor Company is a very famous case in the 1970s. To compete with other automobile companies, Ford designed a subcompact car, Pinto, in a relatively short time. Later, Ford noticed the risk of Pinto’s fuel tank but still put it into production. In 1972, Lily Gray was driving her Pinto on a highway in California together with her passenger Richard Grimshaw. Her car was rear-ended by another car driving at 30 miles per hour. Pinto’s tank was damaged and resulted in a huge fire. While Lily Gray died a few hours later, Richard Grimshaw underwent many surgeries and eventually survived. Besides Grimshaw’s case, there had been many other deaths caused by this vehicle. Reports on the death related to the Pinto range from 27 to 500 deaths. But Grimshaw’s case really made Ford pay: “The jury awarded $127.8 million in damages; $125 million in punitive damages, and $2,841,000 in compensatory damages to Grimshaw and $665,000 in compensatory damages to the Gray family.” The automobile companies became more aware of the safety of cars since then.
In this case, tort liability law poses a game for both the manufacturer and the consumer. A negligence rule is adopted in this case. Negligence rule means that the seller is not liable for the cost of the accident when it does enough amount of precaution, but it pays for all the otherwise. Suppose that Ford can do its precaution by redesigning the car and consumers can do its precaution by adding an extra bumper to decrease the probability of the accident. The cost of precaution for Ford is 3 and that for the consumer is 2. The expected costs of accident are 15 when none of them do precaution, 12 when only the customer does the precaution, 10 when only Ford does the precaution, 6 when both do the precaution.
| Consumer | ||
| Ford | Precaution | No precaution |
| precaution | -3,-8 | -3,-10 |
| No precaution | -12,-2 | -15,0 |
The dominant strategy for Ford is to do the precaution. The payoff of doing the precaution is always higher for that of no precaution. The consumer is therefore going to do the precaution when he or she knows that Ford does the precaution. In this case, setting the right amount of precaution and using the negligence rule successfully achieve the social optimum. The punishment and the legal standard of precaution should be appropriately designed so that the optimum can be achieved. For example, if the punishment for Ford is too small or the standard is too high, Ford’s strategy is likely to change, and it might result in a lower social welfare.
Reference:
- W. (2021, January 22). The Ford Pinto. The American Museum of Tort Law. https://www.tortmuseum.org/ford-pinto/
- Wikipedia contributors. (2021, September 22). Ford Pinto. Wikipedia. https://en.wikipedia.org/wiki/Ford_Pinto#1971%E2%80%931973
- Seiler, B. (2008, October 17). The Pinto Memo: ‘It’s Cheaper to let them Burn!’ Spokesman.Com. https://www.spokesman.com/blogs/autos/2008/oct/17/pinto-memo-its-cheaper-let-them-burn/