Private entity perspective in cost-benefit analysis of safety interventions for passenger ships and the importance of indirect costs – A critical literature review

The key issue in cost-benefit analysis of safety interventions is the valuation of benefits, which are typically taken as the marginal averted costs of accidents, which can be divided into direct and indirect costs. The insured direct costs are generally recognized but do not provide significant incentive for investment in safety, which makes the consideration of the uninsured indirect costs crucial in assessments conducted by private entities. This study aims to identify the extent to which the private entity perspective has been present in the existing published academic literature on cost-benefit analysis of safety interventions for ships, based on consideration of indirect costs. An additional aim is to establish an understanding of the relevant types and scale of possible indirect costs arising from major passenger ship accidents. The conducted review revealed that the private entity perspective has not been considered in the reviewed shipping-related literature. Research from other applicable fields indicate that indirect costs arising from major passenger ship accidents can materialize in varying forms, but reputational damage could represent the single highest cost item. Major passenger ship accidents can also be assumed to be susceptible to high indirect costs based on the various predisposing traits of the industry.