California Space Heaters

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California Space Heaters
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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

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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

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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

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Costs Benefits

• Consumer Savings
• 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

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Risk

• Accident Risk (Overall)
• 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

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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?

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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 5 in 100,000 50 2.5 19.50 1.95m 780,000
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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?