Cost-Benefit Analysis of Consumer Protection Through Upholstered Furniture Fire Barriers
This study evaluates the cost and benefits of implementing a fire barrier performance standard for upholstered furniture in California. It focuses on whether the benefits to consumers and furniture manufacturers outweigh the costs. The objective is to determine if adopting the proposed standard is justified based on evidence gathered through Benefit-Cost Analysis (BCA) methodologies.
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A COST-BENEFIT ANALYSIS OF CONSUMER PROTECTION THROUGH UPHOLSTERED FURNITURE FIRE BARRIERS Rob Wassmer, Ph.D. Acting Chairperson and Professor Department of Public Policy and Administration California State University, Sacramento Nathan Fesler, Graduate Student, MPPA California State University, Sacramento
Policy Environment Technical Bulletin 117-2013 Current Upholstered Furniture Requirement Smoldering performance standard for upholstered furniture Not designed to resist ignition from open flame sources Bureau proposed open flame test for barrier materials August 2014 Increase ignition resistance to open flame using fire barriers a cloth composite, and/or synthetic material placed between the resilient filling material and cover fabric Commitment to evaluate proposed standard through Benefit-Cost Analysis (BCA)
Importance of Benefit-Cost Analysis Regulation produces costs and benefits to consumers Reasonable to pursue if benefits > costs Evidence based approach Used extensively by economists to evaluate proposed/existing regulation of consumer products and safety Necessary to measure benefits and costs in dollars Examples include smoke detectors and fabric flammability standards Federal Agencies (Federal Executive Order 12866) used to evaluate regulation benefits/costs, including the Consumer Protection Safety Commission
Objective of Benefit-Cost Analysis Research questions Do the likely benefits of adopting a fire barrier performance standard for upholstered furniture to the residents of California exceed the likely costs to consumers and/or furniture manufactures of implementing it for home furniture sold in the state? If benefits > costs, given a reasonable sensitivity analysis, then evidence exists for the adoption of the proposed standard
Benefit-Cost Methodology Fire scenarios addressed by proposed standard Upholstered furniture as the first item to ignite from open flame sources Upholstered furniture as a primary contributing fuel source in a residential fire not started directly by upholstered furniture Based on National Fire Incident Reporting System Expected benefits to society from fire barrier standard Reduction in fire caused deaths, injuries, content and property loss each year that fire barrier furniture in house Expected costs to society from fire barrier standard Increase in manufacturing costs from implementing the standard Absorbed through either higher prices and/or lower profit State enforcement and testing costs
Data Table 1. Combined Upholstered Furniture Fire Scenarios for Residential Buildings in California Property Loss1 Content Loss1 Year Incident Count Civilian Injuries Civilian Fatalities 2010 20 $1,150,949 $205,647 1 0 2011 31 $1,279,238 $553,167 8 1 2012 17 $468,183 $82,977 1 0 2013 28 $1,345,063 $520,045 0 0 2014 12 $987,017 $302,672 0 0 2015 13 $379,574 $101,570 0 1 2016 13 $510,963 $159,900 2 0 Average 19 2 0 $874,427 $275,140 Valuations are in constant 2017 dollars Data Source: National Incident Reporting System Data
Table 2. Summary of Benefit Calculations used in Baseline BCA (Using Risk Reduction Probability of 0.19) Average Frequency Lower Bound Dollar Estimate Average Dollar Value Upper Bound Dollar Estimate Data Input Value of Statistical Injury $266,778 $199,556 $356,350 Civilian Injuries 2 $533,556 $399,112 $712,700 Property Loss $874,427 $874,427 $874,427 Content Loss $275,140 $275,140 $275,140 Sum of Loss to Society From Upholstered Furniture Fires $1,683,123 $1,548,679 $1,862,267 Total Benefits Before Discounting $319,793 $294,249 $353,831 Valuations are in constant 2017 dollars
Table 3. Summary of Cost Calculations used in BCA (Assuming all Upholstered Furniture Replaced Instantly for 12.7M Households) Average Frequency Average Dollar Value Lower Bound Dollar Estimate Upper Bound Dollar Estimate Data Input Total Manufacturing Cost per Chair 2 $19.57 $18.80 $20.34 Total Manufacturing Cost per Sofa 1 $38.98 $37.44 $40.52 Upholstered Furniture Cost per Household $78.12 $75.04 $81.20 Cost for All California Households $989,642,518 $950,624,354 $1,028,660,682 State Enforcement Estimated Costs $48,150 $24,075 $72,225 Total Costs Before Discounting $1,028,732,907 $989,690,668 $950,648,429 Valuations are in constant 2017 dollars
Baseline Results Table 4. Net Present Value Outcomes over a 16 year Time Horizon Decision Criteria: NPV > 0 Outcome Values Used NPB (in 2017$) NPC (in 2017$) NPV (in 2017$) With 3% Discount Rate Average Valuations for Benefits and Costs $2,291,118 $838,831,008 - $836,539,890 No With 7% Discount Rate Average Valuations for Benefits and Costs $1,871,177 $646,184,415 - $644,313,238 No
Sensitivity Analysis Using Alternative Fire Count Table 5. Combined Upholstered Furniture Fire Scenarios including Other Furniture Category Year Incident Count Property Loss Content Loss Civilian Injuries Civilian Fatalities 2010 117 $5,682,574 $1,409,740 8 5 2011 110 $3,644,189 $1,242,905 13 3 2012 85 $4,875,448 $2,543,939 9 2 2013 97 $4,205,388 $1,113,966 14 0 2014 69 $3,801,951 $1,097,082 3 0 2015 64 $1,856,314 $548,547 0 2 2016 77 $4,232,166 $857,413 8 2 Average 88 $4,042,576 $1,259,085 8 2 Valuations reported in constant 2017 dollars
Table 6. Net Present Value Outcomes over a 16 year Time Horizon Decision Criteria: NPV > 0 Outcome Values Used NPB (in 2017$) NPC (in 2017$) NPV (in 2017$) With 3% Discount Rate Average Valuations for Benefits and Costs $22,028,374 $838,831,008 - $816,802,633 No With 7% Discount Rate Average Valuations for Benefits and Costs $17,990,773 $646,184,415 - $628,193,642 No
Table 7. Net Present Value Outcomes of Select Benefit-Cost Scenarios Decision Criteria: NPV > 0 Outcome Value(s) Used in Sensitivity NPB (in 2017$) NPC (in 2017$) NPV (in 2017$) 50 percent decrease in Upholstered Furniture Cost per Household 1a $201,895,846 $323,107,926 -$121,212,080 No 50 percent decrease in Upholstered Furniture Cost per Household 2b $111,064,594 $211,039,461 -$99,974,868 No a Uses 100 percent increase in worst case scenarios for all upholstered furniture fire loss categories, 16 year time horizon, P(r) .51, and a 7% discount rate. b Uses 100 percent increase in worst case scenarios for all upholstered furniture fire loss categories, 32 year time horizon, P(r) .19, and a 7% discount rate.
Excel Simulation A Cost-Benefit Analysis Worksheet on the Use of Fire Barriers in Upholstered Furniture ** Excel Model only Valididates 16 year Time Horizon and Product Life Cycle.** (All Items in Light Gray Boxes Require Completion by User) Percent Households Purchasing Furniture 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 0.0625 Total Benefits to California 192,169 192,169 192,169 192,169 192,169 192,169 192,169 192,169 192,169 192,169 192,169 192,169 192,169 192,169 192,169 192,169 192,169 Present Value Costs to California 61,855,667 60,054,045 58,304,898 56,606,698 54,957,959 53,357,242 51,803,147 50,294,318 48,829,435 47,407,218 46,026,425 44,685,850 43,384,320 42,120,699 40,893,883 39,702,799 38,546,407 sum 838,831,008 Present Value Benefits to California 0 186,572 367,710 543,573 714,313 880,080 1,041,019 1,197,270 1,348,971 1,496,252 1,639,245 1,778,072 1,912,856 2,043,714 2,170,760 2,294,107 2,413,860 22,028,374 Total Cost to California 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 61,855,667 Period Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Benefit Side of Upholstered Furniture Regulation Civilian Deaths by Upholstered Furniture Fire Value of a Statistical Life Total Value of Civilian Deaths Civilian Injuries by Upholstered Furniture Fire Value of a Statistical Injury Total Value of Civilian Injuries Property Losses by Upholstered Furniture Fire House Content Losses by Upholstered Furniture Fire Total Cost of Upholstered Furniture Fire Risk Reduction if Upholstered Furniture Fire Regulation Benefit of Upholstered Furniture Regulation to CA 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Values Per Year and in 2017 $s 2 4,373,404 8,746,808 8 266,778 2,134,224 4,042,576 1,259,085 16,182,693 0.190 3,074,712 Cost Side of Upholstered Furniture Regulation Per Chair Manufacturing Cost for Furniture Liner Per Sofa Manufacturing Cost for Furniture Liner Chairs Per Household Sofas Per Household Chair & Sofa Manuf Costs for Furniture Liner Per Household Number of California Households State Enforcement Estimated Costs Cost of Upholstered Furniture Regulation to CA Values Per Year and in 2017 $s 19.57 38.98 2 1 78.12 12,668,235 48,150 989,690,668 Real Discount Rate Number of Years that Chair/Sofa Used (Product Life Cycle) 0.03 16 Net Present Value Fire Barrier Benefits Exceed Costs? -816,802,633 No
Conclusion Reasonable variations in benefits and costs fail to produce a positive net present value outcome Based upon Excel simulations, the following would need to occur so benefits > costs using the baseline Annual lives saved rises to 133 or greater Annual property damage rises to $581 M or greater Total cost to manufacture chair falls to $0.05 and $0.10 for sofa BCA does not support the adoption of the proposed fire- barrier standard Questions?
