BP and the sociology of worth
June 18, 2010
Over at OrgTheory, my coauthor David Stark has raised a key question for economic sociologists. Based on Marion Fourcade’s research, David asks, “How would the choice of valuation method shape the damages paid by BP?” The method used for the Exxon Valdez spill, itself based on economic research on valuation, ended up being a survey. Of it, David writes:
Survey respondents were given visual and oral information about the spill and its effects, as well as informed about a Coast Guard program to prevent future spills. Basically, (and not at all unlike being asked how much you would pay for a basket of groceries) they were asked how much their household would be willing to pay for the program to be implemented. The result was $31 per median household. The economists aggregated these individual “preferences,” multiplying by the number of US household, to derive the figure denoting American’s total willingness to pay (a measure of utility loss) for the environment of Prince William Sound. That figure, in turn, was the basis for the government’s legal case and, therefore, the key determinant of the price that Exxon paid in the ultimate settlement.
David then goes on to explore how different questions might yield different valuations. He offers alternative questions, in terms of comparable expenditure on defense, or on the basis of percentage earnings for BP.
What I find interesting about David’s post is the “snatching” he accomplishes. It takes a public issue that supposedly falls under economic jurisdiction, and places it squarely within the domain of sociology. Different questions trigger different mental associations, and categorize the phenomenon in a different manner. It is, ultimately, a controversy over frames — not unlike the controversy that Raghu Garud and I studied in the case of valuing Amazon.com in the dot-com years. And, as with any such controversy, there is an element of unpredictability as to how a given question might be responded. The natural question to ask now is, who gets to decide on the question that is ultimately asked? on what grounds? and, should the public (and the company) have a say on it?