Risk in Benefit-Cost Analysis

In recent years, benefit-cost analysis has been increasingly applied to large societal decision problems (such as developing a fast breeder energy economy) which involve both risks to society and analysis of very long-term consequences possibly extending over many human generations. This paper examines the philosophical underpinnings of the technique which is a special case of utilitarianism, and compares implications of the technique to those arising from alternative ethical systems in analyzing questions of public safety. Ethical systems which emphasize the good of the whole, such as utilitarianism, are shown to differ sharply in decision outcomes from those which emphasize the rights of the individual, such as libertarianism. It is suggested that benefit-cost analysis should be broadened to include alternative weightings of benefits and costs consistent with a variety of ethical views.     

$s for Lives: Ethical Considerations in the Use of Cost/Benefit Analysis by For-Profit Firms

Cost/benefit analysis is often an imprecise tool because of assumptions that must be made about matters that are difficult to quantify. The problems become especially acute when lives or serious bodily injuries are at stake because of the serious nature of that which is being risked. Furthermore, the literature on cost/benefit analysis focuses on public decision-making situations and decisions by individuals. This paper examines the distinctiveness of the use of cost/benefit analysis involving putting dollar values on human life by for-profit firms. The argument developed in the paper is that the lack of participation by the affected party (or government representative) in balancing costs and benefits raises special ethical concerns. A formula that was developed by the Ford Motor Company concerning accidents involving fuel leakage and fire with resultant loss of life and serious burn injuries is used as an example of both the imprecision of the method and the distinctive factors of the decision process that raise special ethical considerations. The paper examines why the for-profit-decision is distinct, what the special ethical considerations are, and concludes with a discussion of several alternative procedures to monitor the use of cost/benefit analysis so that it would be an effective business tool while at the same time the individual is provided maximum protection.     

Understanding Life-Threatening Risks

Modern science and medicine, and increasing prosperity, have brought many benefits to our society, but not without costs. One cost is that some of the technological innovations and new activities bring with them different and perhaps greater risks that threaten our lives. Any problem involving life-threatening risks is complex, so it is difficult to think through all the implications of the alternatives proposed to address it. This paper presents a number of "facts" to guide constructive thinking about decisions concerning life-threatening risks. The intent is to help us appraise alternatives, design public policy and laws, and communicate about specific risk problems.     

Domestic Violence Spillover into the Workplace: An Examination of the Difference between Legal and Ethical Requirements

Domestic violence is a growing societal concern that often spills over into the workplace. However, employers are not recognizing the spillover of domestic violence as a workplace issue. This is problematic considering the serious financial, legal, and ethical consequences for organizations. We analyzed six cases involving domestic violence that were litigated under specific legal bases: Violence Against Women Act, discrimination laws including Title VII, Family and Medical Leave Act, Americans with Disabilities Act, Social Security Disability, Occupational Safety and Health Act, and associated state and municipal ordinances. We chose cases that illustrate the problems of companies meeting the legal standards but not necessarily reaching ethical expectations. Our approach is congruent with the perspective that both legal and ethical analyses should be used in organizational decision making. We suggest for future research the analysis of additional litigated cases, other ethical perspectives, and additional sources of data. In addition, we suggest that companies who are striving for corporate social responsibility should integrate the ethical treatment of domestic violence victims.     

The Indoor Radiological Problem in Perspective

Measures to tighten homes to conserve energy, as are being encouraged and subsidized by federal and state governments, may reduce air infiltration by 20% or more. Standard prudent risk-assessment methodologies predict that, due to increased levels of indoor radon caused by this reduction in ventilation, the added lifetime lung cancer risk to members of the public is of order 200/million people exposed. In situations where the radon source term is unusually high, or extreme reductions in ventilation are made, the added risk can be more than an order of magnitude greater. While these imputed risks are far outside the range that is normally tolerated, no systematic efforts are in progress to mitigate or limit the risk in any way. Furthermore, efforts to determine better the variations in radon source term and the health effects of indoor radon are being deemphasized. The technical background is presented in some detail, and implications with regard to management of risks to the public are discussed.     

Multiobjective Decision-Tree Analysis1

Single-objective-based decision-tree analysis has been extensively and successfully used in numerous decision-making problems since its formal introduction by Howard Raiffa more than two decades ago. This paper extends the traditional methodology to incorporate multiple noncommensurate objective functions and use of the conditional expected value of the risk of extreme and catastrophic events. The proposed methodology considers the cases where (a) a finite number of actions are available at each decision node and (b) discrete or continuous states of nature can be presented at each chance node. The proposed extension of decision-tree analysis is introduced through an example problem that leads the reader step-by-step into the methodological procedure. The example problem builds on flood warning systems. Two noncommensurate objectives—the loss of lives and the loss of property (including monetary costs of the flood warning system)–are incorporated into the decision tree. In addition, two risk measures—the common expected value and the conditional expected value of extreme and catastrophic events—are quantified and are also incorporated into the decision-making process. Theoretical difficulties associated with the stage-wise calculation of conditional expected values are identified and certain simplifying assumptions are made for computational tractibility. In particular, it is revealed that decisions concerning experimentation have a very interesting impact on the noninferior solution set of options—a phenomenon that has no equivalence in the single-objective case.     

Bounding Analysis as an Inadequately Specified Methodology

The bounding analysis methodology described by Ha-Duong et al. (this issue) is logically incomplete and invites serious misuse and misinterpretation, as their own example and interpretation illustrate. A key issue is the extent to which these problems are inherent in their methodology, and resolvable by a logically complete assessment (such as Monte Carlo or Bayesian risk assessment), as opposed to being general problems in any risk-assessment methodology. I here attempt to apportion the problems between those inherent in the proposed bounding analysis and those that are more general, such as reliance on questionable expert elicitations. I conclude that the specific methodology of Ha-Duong et al. suffers from logical gaps in the definition and construction of inputs, and hence should not be used in the form proposed. Furthermore, the labor required to do a sound bounding analysis is great enough so that one may as well skip that analysis and carry out a more logically complete probabilistic analysis, one that will better inform the consumer of the appropriate level uncertainty. If analysts insist on carrying out a bounding analysis in place of more thorough assessments, extensive analyses of sensitivity to inputs and assumptions will be essential to display uncertainties, arguably more essential than it would be in full probabilistic analyses.     

Equity in Social Risk: Some Empirical Observations

In societal risk analysis the equity of the distribution of risks is often an important consideration owing to the special nature of health risks. We empirically validate some assumptions about equity that have been discussed in the decision analytic literature. Our results show that the way fatalities are distributed throughout a society is considered along with the number of fatalities in evaluating alternative policies involving mortality risks. The concepts of ex ante equity and ex post equity are both shown to be important in judgments of fairness. We next present a decision model based on multiattribute preference theory incorporating the number of fatalities, as well as ex ante equity and ex post equity. When ex ante equity and ex post equity are positively weighted in this fair-risk model , options with more equal risk distributions are ranked higher. Next we empirically show that the distribution of benefits has an impact on judgments of fairness. The fair-risk model does not include information on the benefits distribution, so it would apply when benefits are distributed equally or when the decision maker wishes to not include benefits in the model. We briefly discuss how the notion of proportional equity can incorporate benefits into judgments of the fairness of risk distributions. We then include benefits in a more general model in which fair risk-benefit combinations are those that are exchange equitable. A key implication of this envy-free risk–benefit model is that an unequal distribution of risks may be preferred if it is accompanied by a compensatory differential in benefits consistent with peoples' preference tradeoffs between received benefits and assumed risks. Finally, we discuss how perceived deservedness may influence judgments about equity. We conclude with a discussion of the implications of research on alternative notions of equity for policy makers dealing with social risks.     

Municipal Waste Management: Inequities and the Role of Deliberation

Like radioactive waste, municipal solid waste (MSW) requires consideration of a complex mix of intergenerational and intragenerational risks surrounded by uncertain science. Unlike radioactive waste, MSW is a common problem and hence one often perceived to be controllable, at least until a required facility is proposed in a particular community. The intragenerational risks focused on local communities rouse intense public pressures for management. Although some of the risks can be quantified, the risk assessment process cannot deal with all questions. This article examines the multiple dimensions of the decisions required to be made and the weaknesses of a number of decision tools traditionally used. A case is made for the need to integrate decision tools appropriate to the risks into reflexive and iterative decision processes open to public involvement. It is argued that this presents the best hope of both optimizing decisions about the intragenerational risks as well as raising public debate about the importance of sustainable waste management in transgenerational terms.     

Risk-Risk Balancing for Hazardous Waste Workers: Alternative Work, Traffic Fatalities, and Unemployment

Previous studies have shown that the fatality rate among hazardous waste remediation workers is likely to exceed the fatality rate averted among the public by remediation. The implication is that much hazardous waste remediation is inappropriate on a strictly risk-based basis. Such analyses ignore the fact that the same hazardous waste workers would be engaged in other work with similar or perhaps greater safety risks, and that in any case the single greatest cause of occupational fatalities is traffic accidents, hence distance traveled may be a more important predictor than type of work performed.     

The Blind Spot in Risk Ethics: Managing Natural Hazards

Many risk scholars recognize the importance of including ethical considerations in risk management. Risk ethics can provide in‐depth ethical analysis so that ethical considerations can be part of risk‐related decisions, rather than an afterthought to those decisions. In this article, I present a brief sketch of the field of risk ethics. I argue that risk ethics has a bias toward technological hazards, thereby overlooking the risks that stem from natural and semi‐natural hazards. In order to make a contribution to the field of risk research, risks ethics should broaden its scope to include natural and semi‐natural hazards and develop normative distribution criteria that can support decision making on such hazards.     

Probabilistic Risk Analysis and Terrorism Risk

Since the terrorist attacks of September 11, 2001, and the subsequent establishment of the U.S. Department of Homeland Security (DHS), considerable efforts have been made to estimate the risks of terrorism and the cost effectiveness of security policies to reduce these risks. DHS, industry, and the academic risk analysis communities have all invested heavily in the development of tools and approaches that can assist decisionmakers in effectively allocating limited resources across the vast array of potential investments that could mitigate risks from terrorism and other threats to the homeland. Decisionmakers demand models, analyses, and decision support that are useful for this task and based on the state of the art. Since terrorism risk analysis is new, no single method is likely to meet this challenge. In this article we explore a number of existing and potential approaches for terrorism risk analysis, focusing particularly on recent discussions regarding the applicability of probabilistic and decision analytic approaches to bioterrorism risks and the Bioterrorism Risk Assessment methodology used by the DHS and criticized by the National Academies and others.     

Explaining Public Resistance to Genetically Modified Corn: An Analysis of the Distribution of Benefits and Risks

Genetically modified (GM) crops have met with widespread approval among scientists and policy makers in the United States, but public approval of GM crops, both domestically and abroad, is progressing much more slowly. An underlying cause of public wariness may be that both nations and individual consumers do not perceive significant benefits to themselves from GM crops, while fearing the risks they may incur. In this study, an economic analysis is conducted to determine whether the benefits of one type of GM corn, Bt corn (genetically modified to resist damage from the ECB and Southwestern corn borer), outweigh the potential risks; and who the "winners" and "losers" are among stakeholder groups that may be affected by Bt corn. It is found that Bt corn growers, consumers, and industry all benefit from Bt corn adoption, though the purported health and environmental benefits of reducing chemical pesticide usage through Bt corn are negligible. Though the aggregated public benefit is large, the welfare gain to individual consumers is small and may not make up for perceived risks. While environmental and health risks of Bt corn are unlikely, the potential market risks-impacting both the organic corn market and total U.S. corn exports-are found to be significant. Currently, distributional analysis is not a part of regulatory decision making of Bt corn in the United States; yet it may help to explain why decision makers at both the government and individual-consumer levels have failed to embrace Bt corn and other GM crops.     

Optimal Crop Choice,Irrigation Allocation,and the Impact of Contract Farming

The changing climate and concerns over food security are prompting a new look at the supply chain reliability of products derived from agriculture, and the potential role of contract farming as a mechanism to address climate and price risk while contributing toward crop diversification and water use efficiency is also emerging. In this study, the decision problem of a farmer associated with allocating his land among different crops with varying water requirements is considered, given that a subset of the crops may be associated with a forward contract that is being offered by a buyer. The problem includes a decision to acquire a certain amount of irrigation water capacity prior to the season and to allocate this capacity as irrigation water to be applied during the season to each of the crops selected. Rainfall in the growing season and the market price of each crop at the end of the season are considered to be random variables. Two stochastic programming models are developed to consider facets of this problem and to understand how contracts that reduce market price uncertainty from the problem may change the farmer's decision. The structural properties of these models are discussed, and selected implications are illustrated through an application to data from the Ganganagar district in Rajasthan, India.     

Incorporating Ethnographic Methods in Multidisciplinary Approaches to Risk Assessment and Communication: Cultural and Religious Uses of Mercury in Latino and Caribbean Communities

The potential risk from cultural and religious practices involving mercury in Latino and Caribbean communities raises central methodological and ethical questions for risk assessment and risk communication. Here, specific cultural practices unfamiliar to most risk professionals carry significant inherent risks in the eyes of those professionals but not necessarily in the eyes of practitioners. Practitioners' past experience and history as targets of religious suppression and anti-immigrant sentiment create a reluctance to engage with researchers or public health officials in risk assessment or preventive risk communication efforts. The potential for the risk--in this case mercury contamination in dwellings--to extend beyond the practicing community to future occupants adds to public health concern. Understanding the risks of these practices requires both an understanding of the cultural and political context, beliefs, and behaviors of mercury users and an understanding of the fate and transport of mercury in typical use scenarios. In this study, we employed ethnographic methods (interviews and participant observation) to understand beliefs and behavior about mercury use as well as quantitative modeling and measurement to estimate and assess potential exposures. This represents a new methodology tailored to situations in which traditional activities or observances that are integral components of cultural identity pose risks in and of themselves. Our findings indicate that there are different types of mercury use stemming from different cultural and religious traditions that result in different levels of exposure. Many of the mercury uses that can result in the highest exposures to mercury vapors have previously been attributed to the religious tradition of Santeria, but appear instead to have their roots outside of the religion.     

考虑背景风险的项目投资决策

在项目投资过程中不但面临项目风险,同时还面临背景风险,且背景风险与项目风险之间往往存在着一定的相关性。文章在已有研究的基础上,针对考虑背景风险的项目投资决策问题,分析了风险之间的相关性及相关程度对投资决策的影响。首先讨论了加性背景风险和乘性背景风险单独存在时,背景风险与项目风险之间的相关性对投资决策的影响;其次构建了两种背景风险同时存在情形下的投资模型,进而通过蒙特卡罗仿真方法给出不同相关程度下的仿真结果,在此基础上分析两种背景风险与项目风险之间的相关性及相关程度对投资决策的影响并给出相关研究结论。     

Obtaining Informationally Consistent Decisions When Computing Costs with Limited Information

We demonstrate the need to view in a dynamic context any decision based on limited information. We focus on the use of product costs in selecting the product portfolio. We show how ex post data regarding the actual costs from implementing the decision leads to updating of product cost estimates and potentially trigger a revision of the initial decision. We model this updating process as a discrete dynamical system (DDS). We define a decision as informationally consistent if it is a fixed‐point solution to the DDS. We employ numerical analysis to characterize the existence and properties of such solutions. We find that fixed points are rare, but that simple heuristics find them often and quickly. We demonstrate the usefulness and robustness of our methodology by examining the interaction of limited information with multiple decision rules (heuristics) and problem features (size of product portfolio, profitability of product markets). We discuss implications for research on cost systems.     

Risk-Based Objectives for the Allocation of Chemical, Biological, and Radiological Air Emissions Sensors

This article addresses the problem of allocating devices for localized hazard protection across a region. Each identical device provides only local protection, and the devices serve localities that are exposed to nonidentical intensities of hazard. A method for seeking the optimal allocation Policy Decisions is described, highlighting the potentially competing objectives of maximizing local risk reductions and coverage risk reductions. The metric for local risk reductions is the sum of the local economic risks avoided. The metric for coverage risk reductions is adapted from the p-median problem and equal to the sum of squares of the distances from all unserved localities to their closest associated served locality. Three graphical techniques for interpreting the Policy Decisions are presented. The three linked graphical techniques are applied serially. The first technique identifies Policy Decisions that are nearly Pareto optimal. The second identifies locations where sensor placements are most justified, based on a risk-cost-benefit analysis under uncertainty. The third displays the decision space for any particular policy decision. The method is illustrated in an application to chemical, biological, and/or radiological weapon sensor placement, but has implications for disaster preparedness, transportation safety, and other arenas of public safety.