Risk and its Management in Post-Financial Crisis Hong Kong

In the 1970s and up until the financial crisis occurred in the late 1990s, Hong Kong prospered in a relatively stable social, economic and political context. Since the financial crisis, however, its population has been increasingly exposed to risk: there has been job uncertainty and decreasing capacity for self‐reliance, leading to a growing reliance on public welfare and on families at a time when both are under pressure. The old welfare policies, unable to cope with the new risks, have been replaced by neo‐liberal reforms, redistributing the roles and responsibilities of the individual and the state, with a greater burden falling on the former. Individuals are required to be prudent to manage risk. While these reforms have relieved some of the burden on the state, both new social risk groups and ‘net taxpayers’ considered themselves to have borne disproportional costs. Society is facing serious problems resulting from ineffective old welfare policies, new social risks due to new policies, and the political upheavals arising from increased social conflicts and weakened social cohesion and solidarity. A further complication is that there is no acceptable platform or agent to negotiate a compromise between the polarized groups. This article argues that reliance on publicly funded risk coping strategies or on neo‐liberal risk prevention and mitigation strategies is not a desirable and sustainable policy. A commonly accepted political platform is required to negotiate a compromise which emphasizes shared and balanced roles and responsibilities, and a well‐conceived combination of risk prevention, mitigation and coping strategies.     

Choices at various levels of uncertainty: An experimental test of the restated diversification theorem

Our “Restated diversification theorem” (Skogh and Wu, 2005) says that risk-averse agents may pool risks efficiently without assignment of subjective probabilities to outcomes, also at genuine uncertainty. It suffices that the agents presume that they face equal risks. Here, the theorem is tested in an experiment where the probability of loss, and the information about this probability, varies. The result supports our theorem. Moreover, it tentatively supports an evolutionary theory of the insurance industry—starting with mutual pooling at uncertainty, turning into insurance priced ex ante when actuarial information is available.     

Chastity value as a risk factor for prostituted adolescents in Indonesia: a qualitative exploration

ABSTRACT

Previous studies suggest that the practice of female child and adolescent prostitution can be attributed to various personal and social risk factors. However, cultural beliefs shared in specific societies may also determine prostitution involvement. We qualitatively explored the risk factors associated with prostitution in a rarely investigated Indonesian society. We interviewed eight female participants who were involved in adolescent prostitution. The findings suggest that prostitution involvement is not only attributed to the common personal and social risk factors, but also to cultural beliefs of chastity preservation. We argue that such beliefs may be rooted in gender inequality.     

Environmental disasters as risk regulation catalysts? The role of Bhopal,Chernobyl, Exxon Valdez,Love Canal,and Three Mile Island in shaping U.S. environmental law

Unexpected events such as environmental catastrophes capture wide public attention. Soon after five major shocks—Three Mile Island, Love Canal, Bhopal, Chernobyl, and the Exxon Valdez oil spill—Congress voted on new risk regulation. This paper conducts an event study to test whether individual congressional representatives were “shocked” by these environmental disasters into increasing their probability of voting in favor of risk legislation. On average, representatives were less likely to vote in favor of bills tied to these five events. Significant heterogeneity in representatives’ responses to these shocks is documented. Liberal Northeast representatives were most likely to increase their pro-environment voting in the aftermath of these shocks.

The price of risk with incomplete knowledge on the utility function*

When a risk is exchanged, the exact value for the minimum price (positive or negative) that the purchaser (investor, or insurer) is willing to pay is given by the certainty equivalent wealth level, which in turn depends on his specific utility function. When this utility function is unknown, then only a sufficient condition on the price can ever be found. This paper provides methods for calculating such a sufficient condition, when only limited information on the utility function is known.     

Conspicuous conservatism in risk choice

We analyze the risk levels chosen by agents who have private information regarding their quality, and whose performance will be judged and rewarded by outsiders. Assume that risk choice is observable. Agents will choose risk strategically to enhance their expected reputations. We show that conspicuous conservatism results: agents of different qualities choose levels below those that would be chosen if quality were observable. This happens because bad agents must cloak their identity by choosing the same risk level as good agents, and good agents are more likely to distinguish themselves if they reduce the risk level. Our results contrast starkly with those for the case when risk choice cannot be observed.

The Gaussian Mixture Dynamic Conditional Correlation Model: Parameter Estimation,Value at Risk Calculation,and Portfolio Selection

A multivariate generalized autoregressive conditional heteroscedasticity model with dynamic conditional correlations is proposed, in which the individual conditional volatilities follow exponential generalized autoregressive conditional heteroscedasticity models and the standardized innovations follow a mixture of Gaussian distributions. Inference on the model parameters and prediction of future volatilities are addressed by both maximum likelihood and Bayesian estimation methods. Estimation of the Value at Risk of a given portfolio and selection of optimal portfolios under the proposed specification are addressed. The good performance of the proposed methodology is illustrated via Monte Carlo experiments and the analysis of the daily closing prices of the Dow Jones and NASDAQ indexes.     

Resilience in the Face of Disasters: Bridging Micro- and Macro-Perspectives

This paper discusses the use of risk and resilience theory to understand how individuals and communities respond to natural disasters that present ongoing developmental challenges to personal and collective well-being. In the past two to three decades, mental health workers have developed numerous disaster relief strategies; while economists have become expert at estimating risk. These develops are explored.     

Fishing in Urban New Jersey: Ethnicity Affects Information Sources,Perception, and Compliance

Recreational and subsistence angling are important aspects of urban culture for much of North America where people are concentrated near the coasts or major rivers. Yet there are fish and shellfish advisories for many estuaries, rivers, and lakes, and these are not always heeded. This paper examines fishing behavior, sources of information, perceptions, and compliance with fishing advisories as a function of ethnicity for people fishing in the Newark Bay Complex of the New York–New Jersey Harbor. We test the null hypothesis that there were no ethnic differences in sources of information, perceptions of the safety of fish consumption, and compliance with advisories. There were ethnic differences in consumption rates, sources of information about fishing, knowledge about the safety of the fish, awareness of fishing advisories or of the correct advisories, and knowledge about risks for increased cancer and to unborn and young children. In general, the knowledge base was much lower for Hispanics, was intermediate for blacks, and was greatest for whites. When presented with a statement about the potential risks from eating fish, there were no differences in their willingness to stop eating fish or to encourage pregnant women to stop. These results indicate a willingness to comply with advisories regardless of ethnicity, but a vast difference in the base knowledge necessary to make informed risk decisions about the safety of fish and shellfish. Although the overall median income level of the population was in the $25,000–34,999 income category, for Hispanics it was on the border between $15,000–24,999 and $25,000–34,999.     

A Probabilistic Methodology for the Assessment of Safety from Dropped Loads in Offshore Engineering

Pipeline damage by dropped objects from crane activities is a significant hazard for offshore platform installations. In this paper a probabilistic methodology is utilized for the estimation of the pipeline impact and rupture frequencies; this information is obtained both for the overall pipeline section exposed to the hazard and for a number of critical locations along the pipeline route. The presented algorithm has been implemented in a computer program that allows the analysis of a large number of possible drop points and pipeline target point locations. This methodology may be used in common risk analysis studies for evaluating the risk for platform personnel from dropped objects; however, the proposed technique may also be useful for other applications where engineering judgment has so far been the main driving criterion. In particular, two sample cases have been analyzed. The first one is the problem of selecting the best approaching route to a platform. By analyzing different route alternatives, a reduction of the impact frequency and therefore of the risk for the platform personnel may be achieved. The second application deals with the selection of the location for a safety valve at the riser base. The analysis may give useful information, such as the highest impact frequency location and the rupture frequencies upstream and downstream of the valve as a function of the valve position; this information, together with the transported medium inventory upstream of the valve, may give the designer a documented and justifiable rationale for selecting the best location for the valve from a safety point of view.