Benefit Analysis for Natural Hazards

The objective of this paper is to develop the ex ante perspective for benefit analysis with natural hazards. It defines an ex ante evaluation of the economic benefits that arise from policies designed to reduce either the risk of or the detrimental effects associated with a natural hazard. In the process the paper compares the ex ante and ex post perspectives and discusses the prospects for implementing the framework by measuring the valuation concepts that are developed.     

基于风险规避和公平偏好的供应链收益共享契约协调研究

在一个简单的二级供应链系统中,建立了供应商和零售商同时具有风险规避和公平偏好的收益共享契约协调模型,通过修正、扩展FS效用收益模型,先后考察并分析了分散决策和集中决策下供应链的协调状态,研究发现,供应商和零售商的风险规避系数和公平偏好系数及收益份额必须满足特定的条件,收益共享契约才能使系统供应链整体达到协调状态;在此基础上,对风险规避和公平偏好因素进行敏感度分析,得到供应商和零售商行为偏好系数对供应链及成员最优订货量的影响;最后进行演化博弈算例分析和结论验证,体现了该协调模型的有效性和实用性。由此说明供应商和零售商的风险规避和公平偏好因素同时作用会改变系统供应链协调时的最优订货量,并对决策人的决策行为产生很大的影响。     

Temptation and Self‐Control

We study a two‐period model where ex ante inferior choice may tempt the decision‐maker in the second period. Individuals have preferences over sets of alternatives that represent second period choices. Our axioms yield a representation that identifies the individual's commitment ranking, temptation ranking, and cost of self‐control. An agent has a preference for commitment if she strictly prefers a subset of alternatives to the set itself. An agent has self‐control if she resists temptation and chooses an option with higher ex ante utility. We introduce comparative measures of preference for commitment and self‐control and relate them to our representations.     

Efficient or Fair? Operationalizing Ethical Principles in Flood Risk Management: A Case Study on the Dutch-German Rhine

Flood risk management decisions in many countries are based on decision-support frameworks which rely on cost-benefit analyses. Such frameworks are seldom informative about the geographical distribution of risk, raising questions on the fairness of the proposed policies. In the present work, we propose a new decision criterion that accounts for the distribution of risk reduction and apply it to support flood risk management decisions on a transboundary stretch of the Rhine River. Three types of interventions are considered: embankment heightening, making Room for the River, and changing the discharge distribution of the river branches. The analysis involves solving a flood risk management problem according to four alternative formulations, based on different ethical principles. Formulations based on cost optimization lead to very poor performances in some areas for the sake of reducing the overall aggregated costs. Formulations that also include equity criteria have different results depending on how these are defined. When risk reduction is distributed equally, very poor economic performance is achieved. When risk is distributed equally, results are in line with formulations based on cost optimization, while a fairer risk distribution is achieved. Risk reduction measures also differ, with the cost optimization approach strongly favoring the leverage of changing the discharge distribution and the alternative formulations spending more on embankment heightening and Room for the River, to rebalance inequalities in risk levels. The proposed method advances risk-based decision-making by allowing to consider risk distribution aspects and their impacts on the choice of risk reduction measures.     

Representing Preferences with a Unique Subjective State Space

We extend Kreps' (1979) analysis of preference for flexibility, reinterpreted by Kreps (1992) as a model of unforeseen contingencies. We enrich the choice set, consequently obtaining uniqueness results that were not possible in Kreps' model. We consider several representations and allow the agent to prefer commitment in some contingencies. In the representations, the agent acts as if she had coherent beliefs about a set of possible future (ex post) preferences, each of which is an expected‐utility preference. We show that this set of ex post preferences, called the subjective state space, is essentially unique given the restriction that all ex post preferences are expected‐utility preferences and is minimal even without this restriction. Because the subjective state space is identified, the way ex post utilities are aggregated into an ex ante ranking is also essentially unique. Hence when a representation that is additive across states exists, the additivity is meaningful in the sense that all representations are intrinsically additive. Uniqueness enables us to show that the size of the subjective state space provides a measure of the agent's uncertainty about future contingencies and that the way the states are aggregated indicates whether these contingencies lead to a desire for flexibility or commitment.     

Socioeconomic Vulnerability and Adaptation to Environmental Risk: A Case Study of Climate Change and Flooding in Bangladesh

In this article we investigate the complex relationship between environmental risk, poverty, and vulnerability in a case study carried out in one of the poorest and most flood-prone countries in the world, focusing on household and community vulnerability and adaptive coping mechanisms. Based upon the steadily growing amount of literature in this field we develop and test our own analytical model. In a large-scale household survey carried out in southeast Bangladesh, we ask almost 700 floodplain residents living without any flood protection along the River Meghna about their flood risk exposure, flood problems, flood damage, and coping mechanisms. Novel in our study is the explicit testing of the effectiveness of adaptive coping strategies to reduce flood damage costs. We show that, households with lower income and less access to productive natural assets face higher exposure to risk of flooding. Disparity in income and asset distribution at community level furthermore tends to be higher at higher risk exposure levels, implying that individually vulnerable households are also collectively more vulnerable. Regarding the identification of coping mechanisms to deal with flood events, we look at both the ex ante household level preparedness for flood events and the ex post availability of community-level support and disaster relief. We find somewhat paradoxically that the people that face the highest risk of flooding are the least well prepared, both in terms of household-level ex ante preparedness and community-level ex post flood relief.     

On the Relation Between Trust and Fairness in Environmental Risk Management

In this study, we empirically examine the relations between trust, fairness, and cooperation within two environmental risk management contexts, one in which the focal issue is of high personal moral importance and the other in which the focal issue is of low moral importance. Using an experimental design embedded in two parallel survey questionnaires, one mailed to residents of Washington State, the other to German‐speaking residents of Switzerland, we either manipulated or constructed three factors, issue importance (high/low), procedural fairness (fair/unfair), and policy outcome (risk averse/risk accepting). This design enabled us to compare the predictions of the standard account of procedural fairness, that trust and cooperation are determined by judgments of fairness, with the predictions of an alternative account, that trust and cooperation will be determined by judgments of procedural fairness only when the issue involved is not morally important. Results for the American case showed that under conditions of high issue importance, policy outcome affected judged fairness, trust, and cooperation. Under conditions of low issue importance, policy outcome had no effect on judged fairness or trust but did have a moderate impact on cooperation. Analyses also showed that when issue importance was high, procedural fairness had no effects. When issue importance was low, procedural fairness had moderate effects on judged fairness and trust. Results for the Swiss case replicated the main findings for the American case. Together, these results support the alternative model of the relation between trust and fairness, suggesting that the efficacy of fair procedures is strictly limited.     

THE JOINT DESIGN OF UNEMPLOYMENT INSURANCE AND EMPLOYMENT PROTECTION: A FIRST PASS

Unemployment insurance and employment protection are typically discussed and studied in isolation. In this paper, we argue that they are tightly linked, and we focus on their joint optimal design in a simple model, with risk‐averse workers, risk‐neutral firms, and random shocks to productivity. We show that, in the “first best,”unemployment insurance comes with employment protection—in the form of layoff taxes; indeed, optimality requires that layoff taxes be equal to unemployment benefits. We then explore the implications of four broad categories of deviations from first best: limits on insurance, limits on layoff taxes, ex post wage bargaining, and ex ante heterogeneity of firms or workers. We show how the design must be modified in each case. Finally, we draw out the implications of our analysis for current policy debates and reform proposals, from the financing of unemployment insurance, to the respective roles of severance payments and unemployment benefits.     

INCOMPLETE SOCIAL CONTRACTS

There is a long normative ‘Social Contract’ tradition that attempts to characterize ex‐post income inequalities that are agreeable to all ‘behind a veil of ignorance.’ This paper takes a similar normative approach to characterize social decision‐making procedures. It is shown that quite generally some form of majority‐voting is preferred to unanimity ‘behind a veil of ignorance’ whenever society faces deadweight costs in making compensating transfers. Deviations from unanimity (or ex‐post Pareto optimality) are ex‐ante efficient to the extent that they economize on costly compensating transfers. Put another way, the optimal decision rule trades off the benefits of minority protection and those from greater flexibility. (JEL: H11, G33, G34, D63, P16, P48)     

Implementation of Equity in Resource Allocation for Regional Earthquake Risk Mitigation Using Two‐Stage Stochastic Programming

This article presents a new methodology to implement the concept of equity in regional earthquake risk mitigation programs using an optimization framework. It presents a framework that could be used by decisionmakers (government and authorities) to structure budget allocation strategy toward different seismic risk mitigation measures, i.e., structural retrofitting for different building structural types in different locations and planning horizons. A two‐stage stochastic model is developed here to seek optimal mitigation measures based on minimizing mitigation expenditures, reconstruction expenditures, and especially large losses in highly seismically active countries. To consider fairness in the distribution of financial resources among different groups of people, the equity concept is incorporated using constraints in model formulation. These constraints limit inequity to the user‐defined level to achieve the equity‐efficiency tradeoff in the decision‐making process. To present practical application of the proposed model, it is applied to a pilot area in Tehran, the capital city of Iran. Building stocks, structural vulnerability functions, and regional seismic hazard characteristics are incorporated to compile a probabilistic seismic risk model for the pilot area. Results illustrate the variation of mitigation expenditures by location and structural type for buildings. These expenditures are sensitive to the amount of available budget and equity consideration for the constant risk aversion. Most significantly, equity is more easily achieved if the budget is unlimited. Conversely, increasing equity where the budget is limited decreases the efficiency. The risk‐return tradeoff, equity‐reconstruction expenditures tradeoff, and variation of per‐capita expected earthquake loss in different income classes are also presented.     

Compressed Natural Gas Bus Safety: A Quantitative Risk Assessment

This study assesses the fire safety risks associated with compressed natural gas (CNG) vehicle systems, comprising primarily a typical school bus and supporting fuel infrastructure. The study determines the sensitivity of the results to variations in component failure rates and consequences of fire events. The components and subsystems that contribute most to fire safety risk are determined. Finally, the results are compared to fire risks of the present generation of diesel-fueled school buses. Direct computation of the safety risks associated with diesel-powered vehicles is possible because these are mature technologies for which historical performance data are available. Because of limited experience, fatal accident data for CNG bus fleets are minimal. Therefore, this study uses the probabilistic risk assessment (PRA) approach to model and predict fire safety risk of CNG buses. Generic failure data, engineering judgments, and assumptions are used in this study. This study predicts the mean fire fatality risk for typical CNG buses as approximately 0.23 fatalities per 100-million miles for all people involved, including bus passengers. The study estimates mean values of 0.16 fatalities per 100-million miles for bus passengers only. Based on historical data, diesel school bus mean fire fatality risk is 0.091 and 0.0007 per 100-million miles for all people and bus passengers, respectively. One can therefore conclude that CNG buses are more prone to fire fatality risk by 2.5 times that of diesel buses, with the bus passengers being more at risk by over two orders of magnitude. The study estimates a mean fire risk frequency of 2.2 x 10(-5) fatalities/bus per year. The 5% and 95% uncertainty bounds are 9.1 x 10(-6) and 4.0 x 10(-5), respectively. The risk result was found to be affected most by failure rates of pressure relief valves, CNG cylinders, and fuel piping.     

An Integrated Physical Dispersion and Behavioral Response Model for Risk Assessment of Radiological Dispersion Device (RDD) Events

A radiological dispersion device (RDD) or "dirty" bomb is a conventional explosive wrapped in radiological material. Terrorists may use an RDD to disperse radioactive material across a populated area, causing casualties and/or economic damage. Nearly all risk assessment models for RDDs make unrealistic assumptions about public behavior in their health assessments, including assumptions that the public would stand outside in a single location indefinitely. In this article, we describe an approach for assessing the risks of RDD events incorporating both physical dispersion and behavioral response variables. The general approach is tested using the City of Pittsburgh, Pennsylvania as a case study. Atmospheric models simulate an RDD attack and its likely fallout, while radiation exposure models assess fatal cancer risk. We model different geographical distributions of the population based on time of day. We evaluate aggregate health impacts for different public responses (i.e., sheltering-in-place, evacuating). We find that current RDD models in use can be improved with the integration of behavioral components. Using the results from the model, we show how risk varies across several behavioral and physical variables. We show that the best policy to recommend to the public depends on many different variables, such as the amount of trauma at ground zero, the capability of emergency responders to get trauma victims to local hospitals quickly and efficiently, how quickly evacuations can take place in the city, and the amount of shielding available for shelterers. Using a parametric analysis, we develop behaviorally realistic risk assessments, we identify variables that can affect an optimal risk reduction policy, and we find that decision making can be improved by evaluating the tradeoff between trauma and cancer fatalities for various RDD scenarios before they occur.     

Summarizing Risk Using Risk Measures and Risk Indices

Our society is fascinated with risk in many different areas and disciplines. One of the main ways to describe and communicate the level of risk is through risk indices, which summarize risk using numbers or categories such as words, letters, or colors. These indices are used to communicate risks to the public, understand how risk is changing over time, compare among different risks, and support decision making. Given the different methods to construct risk indices, including flawed methods such as risk matrices, this article develops specific steps that analysts can follow to create a risk index. This article emphasizes the importance of describing risk with a probability distribution, developing a numerical risk measure that summarizes the probability distribution, and finally translating the risk measure to an index. Measuring the risk is the most difficult part and requires the analyst to summarize a probability distribution into one or possibly a few numbers. The risk measure can then be transformed to a numerical or categorical index. I apply the method outlined in this article to construct a risk index that compares the risk of fatalities in aviation and highway transportation.     

Ecological Risks and Community Perceptions of Fairness and Justice: A Cross-Cultural Model

Intergenerational justice is implicit in international commitments to sustainability. If ecological, economic, and social components of sustainability are to be achieved, there is a necessity for intergenerational justice considerations to be included in decision making. The present generation's risk judgments should include consideration of the possible outcomes for their children. But intergenerational issues cannot be considered in isolation from other current risk and fairness concerns. This article reports on a community-based integrative model that describes justice and other attitudes and motivations that determine community and individual proenvironmental behavior in two nations: Germany and Australia. This model can account for a considerable amount of the variance in political compliance as well as various proenvironmental behaviors. Group or individual self-interests have nearly no effects on global protective behavior. It is shown that universal as well as contextual principles, including distributive (within or between generations), procedural, and interactive justice, play a crucial role in fairness judgments. Other principles are also taken into account, such as efficiency, environmental rights, and rights to economic welfare. The results are discussed in relation to the importance of complex community fairness judgments in predicting and evaluating acceptance of political decisions, and for promoting proenvironmental behavior.     

公平偏好下制造商主导型供应链风险传递研究

为研究公平偏好对供应链风险传递的影响，引入公平偏好效用函数，构建制造商主导型供应链风险传递模型，并借助价格弹性系数引申出风险弹性系数，再利用公平偏好矩阵，解决由生产成本波动引起定价与收益风险传递问题。研究表明：制造商公平偏好对定价风险有正向效用，零售商独具公平偏好只对批发价格风险起负向效用却不影响销售价格风险，但制造商公平偏好能促进零售商公平偏好降低销售价格风险；市场规模会弱化公平偏好对定价风险的效用，而价格敏感性则强化该效用；对于收益风险传递提出并证明了一般性结论：收益风险传递与公平偏好无关，只与外部市场有关。数值仿真表明零售商需理性把握公平偏好度以便控制定价风险，而制造商则需要更多地关注公平性，以便于减小定价风险。研究结果对理性权衡收益与风险具有一定的参考价值，对非理性特征下供应链风险管理的良性发展有重要的指导意义。     

GM Foods and the Misperception of Risk Perception

Public opposition to genetically modified (GM) food and crops is widely interpreted as the result of the public's misperception of the risks. With scientific assessment pointing to no unique risks from GM crops and foods, a strategy of accurate risk communication from trusted sources has been advocated. This is based on the assumption that the benefits of GM crops and foods are self-evident. Informed by the interpretation of some qualitative interviews with lay people, we use data from the Eurobarometer survey on biotechnology to explore the hypothesis that it is not so much the perception of risks as the absence of benefits that is the basis of the widespread rejection of GM foods and crops by the European public. Some respondents perceive both risks and benefits, and may be trading off these attributes along the lines of a rational choice model. However, for others, one attribute-benefit-appears to dominate their judgments: the lexicographic heuristic. For these respondents, their perception of risk is of limited importance in the formation of attitudes toward GM food and crops. The implication is that the absence of perceived benefits from GM foods and crops calls into question the relevance of risk communication strategies for bringing about change in public opinion.     

Information Acquisition and Efficient Mechanism Design

We consider a general mechanism design setting where each agent can acquire (covert) information before participating in the mechanism. The central question is whether a mechanism exists that provides the efficient incentives for information acquisition ex‐ante and implements the efficient allocation conditional on the private information ex‐post. It is shown that in every private value environment the Vickrey‐Clark‐Groves mechanism guarantees both ex‐ante as well as ex‐post efficiency. In contrast, with common values, ex‐ante and ex‐post efficiency cannot be reconciled in general. Sufficient conditions in terms of sub‐ and supermodularity are provided when (all) ex‐post efficient mechanisms lead to private under‐ or over‐acquisition of information.     

Ex Ante and Ex Post Values for Changes in Risks

In this paper, I take risk to mean a composite of the probability of an adverse event and the severity of the consequences of the event. I explore two issues in the economic valuation of changes in individual risks brought about by public policies. These are: (1) the relationship between the values of risk prevention (i.e., the lowering of the probabilities of adverse events) and risk reduction (i.e., the reduction of the severity of the consequences of adverse events); and (2) the relationship between ex ante and ex post measures of the value of changes in risk.