1. California Space Heaters
11/19/2018

2. California Space Heaters -- Background
Who buys kerosene heaters?
Consumers with low income
Consumers with electric heat
What hazards are associated with kerosene heaters?
Fire
Temperature
Flare Up (Overheating)
Ignition Spark
Refueling (Tank Overflow)
Emissions
Oxygen Depletion
Historical Data (Older Technology)
CPSC: In 1982, kerosene heaters were associated with 3300 fires, 130 Deaths, 370 Injuries, $35.2 million in property loss

3. What can producer do to reduce hazards?
Fire
Install Thermostat ($7.50)
Install Temperature Shutoff ($22.00)
Install Tank Level Gauge (3.00
Install Automatic Cutoff ($8.00)
Reduce Burning Temperature ($40.00)*
Install Siphon Filling System ($12.00)
Install Spark Emission System ($19.50)
Install Large Tank ($12.00)
Install Removable Tank ($6.00)
Emissions
Install Wick Stop ($6.50)
Install Wick Adjustment ($32.00)
Oxygen Depletion
None

4. What can consumers do to reduce hazards?
Place Heater Away from Combustibles
Use Only Low Sulfur Kerosene
Position Wick Correctly
Refill Outside
Use Kerosene Additive
Cleaning & Wick Replacement
Vent Room

5. Costs & Benefits Consumer Savings Production Cost Demand
Oil Heat -- $470 per year
Electric Heat -- $685 per year
Production Cost
Basic model = $44 (Retail $88)
Deluxe model = $189 (Retail $378)
Demand
Basic Model = 2 million
Deluxe Model = Negligible
Liability Costs
Basic Model -- $55
Deluxe Model -- $10

6. Risk Accident Risk (Overall) Accident Risk (Features)
Manufacturing Defect – 1/1 million
Misuse (Basic Model) -- 5/100,000 (50/1 million)
Misuse (Deluxe Model) -- 4/1 million
Accident Risk (Features)
Spark ignition reduce fatality risk by 50%
Wick adjustment reduce fatality risk by 2.5%

7. Key Questions
Is the heater a beneficial product that should be produced?
How should the firm decide what features to include?
What role can warnings & instructions play?
Should the company offer multiple products and let customers chose?
Millions of these heaters have been sold, variation in models & features
Consumer Reports prices range from $170-$290 – All were judged to be inherently dangerous
1985 CR states that million were in use
Government inspection & maintenane
As of 1994, govermment required that Diesel fuel be colored. This could be done for Kerosene.
Other issues – imported products
Exports – Turkey wants low cost model only.

8. Implied prices of a life
Safety feature
Baseline deaths
Pct reduction
Lives saved
Unit cost add-on
Total cost of add-on
Implied price of a life
Electric wick adjustment
5 in 100,000
2.5
.125
$32
$3.2m
$25.6m
Electric spark ignition 50
$19.50
$1.95m
$780,000

9. Other Issues -- Export
A government-owned company in Turkey has asked CSH for a license to produce its kerosene heaters
Background
Basic model only with minimal safety features
Low-income users who face high energy costs
Kerosene is widely used in Turkey for a variety of purposes
High sulfur kerosene more commonly available that low sulfur
Many homes in the mountainous regions are poorly ventilated
Lawsuits not likely either in the U.S. or Turkey for accidents
The heaters would not be regulated in Turkey
Should California Space Heaters license the heater to Turkey?
Who should decide on the safety features?
Should any safety features be installed?
How should the product be priced?
Should product be licensed? (What are alternatives – freezing? Wood fires? Note that Turkey has wide use of kerosene.)
Who is best placed to evaluate costs & benefits? (Turkish firm -- CSH has duty to provide information.)
Should CSH insist on safety features? (If Turkish company fully understands hazards, then insisting would amount to paternalism.)
Are markets really separate (Ford Firestone & Venezuela)
Options – monitor accidents?