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Risk Analysis - Today Risk Assessment Risk Communication Risk Management Cost- benefit analysis
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Integrating Risk Integrating Risk Assessment and Benefit-Assessment and Benefit-Cost AnalysisCost Analysis
Richard A. Williams, Ph.D.Richard A. Williams, Ph.D.Managing Director for Regulatory Managing Director for Regulatory Studies and the Government Studies and the Government Accountability ProjectAccountability ProjectMercatus Center at George Mason Mercatus Center at George Mason UniversityUniversity
Human Behavior and Human Behavior and Reducing Population Reducing Population RiskRisk
.Nutrition, Toxicology, Microbiology, Chemistry, Pathology...
What is a healthier or safer practice?
Psychology, Sociology, Economics, Ag. Economics
How do we get organizations or consumers to make the right changes?
Reduce Risk
Risk Analysis - TodayRisk Analysis - Today
RiskAssessment
RiskCommunication
RiskManagement Cost-
benefit analysis
Separation of Risk Separation of Risk Assessment and Risk Assessment and Risk Management?Management?
Safety analysisSafety analysis Conservative assumptionsConservative assumptions
Winston Churchill got Winston Churchill got it...it...
“...he never fell a victim to the black magic of specialist infallibility. It was the task of specialists and experts to supply the weights and measures: it was for him to assess them and to reach conclusions.
From Winston Churchill, An Intimate Portrait by Violet Bonham Carter
Risk Management and Risk Management and Benefit-Cost AnalysisBenefit-Cost Analysis
B/C analysis is analysis of B/C analysis is analysis of possible decisions (options)possible decisions (options)
Also should be unbiased Also should be unbiased informationinformation
More in common with risk More in common with risk assessment that decision makingassessment that decision making
Analysis – Cost-Benefit Analysis – Cost-Benefit and Risk Assessmentand Risk Assessment Net Benefits not always chosen Net Benefits not always chosen
(unlike safety levels)(unlike safety levels) Neither science, both inform Neither science, both inform
decision-makingdecision-making Both are analysisBoth are analysis
Reasons for Reasons for OneOne AnalysisAnalysis Benefits = $ Risk ReductionBenefits = $ Risk Reduction Probabilistic risk reductions Probabilistic risk reductions
common to bothcommon to both Countervailing risks combine Countervailing risks combine
microeconomics and risk microeconomics and risk assessmentassessment
Easier for managersEasier for managers
Combined Risk Combined Risk AnalysisAnalysis
Public Public Health Health ProblemProblem
Risk Analysis FormatRisk Analysis Format
I.I. Define public health problemDefine public health problem ◊ ◊ Risk, not solutionsRisk, not solutions
◊ ◊ Not too narrowNot too narrow
◊ ◊ Not too broadNot too broad
A Risk AnalysisA Risk Analysis
Public Public Health Health ProblemProblem
Hazard & Hazard & Market Market Failure IDFailure ID
Hazard and Market Hazard and Market Failure IdentificationFailure IdentificationII.II. Hazard and market failure Hazard and market failure
◊ ◊ Hazard Hazard IdentificationIdentification ◊ ◊ Risk importanceRisk importance ◊ ◊ Market failureMarket failure
A Risk AnalysisA Risk Analysis
Public Public Health Health ProblemProblem
Hazard & Hazard & Market Market Failure IDFailure ID
Control Control OptionsOptions
Control OptionsControl OptionsIII.III. Control OptionsControl Options
Legal Requirements for target riskLegal Requirements for target riskWarning and information labelsWarning and information labelsInformation provisionInformation provisionProduction standardsProduction standardsProduct StandardsProduct StandardsPermitsPermitsTestingTesting
A Risk AnalysisA Risk Analysis
Public Public Health Health ProblemProblem
Hazard & Hazard & Market Market Failure IDFailure ID
Control Control OptionsOptions
BaselinesBaselines
BaselinesBaselines
IV.IV. BaselinesBaselines
Producer PracticesProducer PracticesConsumer PracticesConsumer PracticesExposure/RiskExposure/Risk
A Risk AnalysisA Risk Analysis
Public Public Health Health ProblemProblem
Hazard & Hazard & Market Market Failure IDFailure ID
Control Control OptionsOptions
BaselinesBaselines
Market Market ResponsesResponses
Market ResponsesMarket Responses Changes in consumer behaviorChanges in consumer behavior
– Knowledge, practicesKnowledge, practices Changes in producer behaviorChanges in producer behavior
– Equipment, practices, knowledge, Equipment, practices, knowledge, products, packaging, businessproducts, packaging, business
Direct effects/Ripple effectsDirect effects/Ripple effects
A Risk AnalysisA Risk Analysis
Public Public Health Health ProblemProblem
Hazard & Hazard & Market Market Failure IDFailure ID
Control Control OptionsOptions
BaselinesBaselines
Market Market ResponsesResponses
Countervailing risk decreases (benefits)
Countervailing risk increases (costs)
Non-risk costs
Non-risk benefits
Requirements to Requirements to BenefitsBenefits
Control Option
Behavior Change
Costs
BenefitsProvisionsCoverageTimeHazards
Countervailing Risks – Countervailing Risks – Costs and BenefitsCosts and Benefits Consumption RisksConsumption Risks Production RisksProduction Risks Public/private risksPublic/private risks
Countervailing Countervailing Production RisksProduction Risks
Supplier Firm
Downstream Firm
Substitute Firm
Compliment Firm
Target Firm
Implications:Implications:Risk Analysis and CV Risk Analysis and CV RisksRisks Risk Assessment - No Risk Assessment - No
conservative assumptionsconservative assumptions Risk Communication – more Risk Communication – more
controversialcontroversial Risk Management Risk Management
– No precautionary principleNo precautionary principle– Uncertainty trumps small risksUncertainty trumps small risks
A Risk AnalysisA Risk Analysis
Public Public Health Health ProblemProblem
Hazard & Hazard & Market Market Failure IDFailure ID
Control Control OptionsOptions
BaselinesBaselines
Market Market ResponsesResponses
Countervailing risk decreases (benefits)
Countervailing risk increases (costs)
Non-risk costs
Non-risk benefits
Sensitivity Sensitivity AnalysisAnalysis
SummarySummary Risk Assessment and Cost-Benefit Risk Assessment and Cost-Benefit
Analysis are not/should not be Analysis are not/should not be risk management.risk management.
Good reasons for combining them Good reasons for combining them including benefits, economies of including benefits, economies of scale and countervailing risks.scale and countervailing risks.
New framework combines both.New framework combines both.