Page 202 - RISK Management IC 86

Risk Management

Q2. Distinguish between :

Ans. (a) Private Costs and Social Costs - Private Costs and
Social Costs - Private Costs are those costs
necessarily incurred by individual or firm engaging
in a particular activity. There also might be other
activities whose costs fall back upon the society or
community at large.

This is called Social Costs. For e.g, A manufacturing
company have to meet the costs of raw materials,
labour, and other inputs which appears in its book
of accounts. But during the production process, if
it discharges untreated effluents into adjacent water
bodies or smoke in the air, the cost of cleaning those
amenities fall upon the community.

The law decides whether these social costs can be
borne by the principal. In fact nowadays the
Government has become strict and have made laws
to force the firms to be financially responsible for
the consequence of their actions. Sometimes even
if there is no legal compulsion there can be moral
obligation.

Sashi Publications - www.sashipublications.com 203

Copyright@ The Insurance Times. 09883398055 / 09883380339