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SAfety Preferences for Health-related Industrial Risks – SAPHIR

The problem addressed

Industrial accidents may cause loss of life and limb as well as short- and long-term damages to the environment. Both regulators and firms design policies to manage the risks of industrial activities. One common standard to evaluate the performance of a specific safety policy is the expected number of lives saved and injuries avoided. However, this standard fails to account for important dimensions of risk. Indeed, it neither considers society’s preferences to avoid large scale accidents, nor does it capture concerns over possible inequalities in the resulting distribution of risk across individuals. For this reason, alternative standards have been implemented, which typically require limiting the maximum probable loss or the maximum individual risk rather than the expected loss. The imposition of any such standard reflects social norms and values toward public safety. However, there seems to be a large gap between the theoretical insights on safety preferences gained in welfare economics and operations research and the safety standards actually implemented to manage health-related industrial risks.

Keywords: values preferences risk aversion safety standards

Research questions

The project aims to highlight the normative stands of presently used safety standards and show how they relate to preferences for human and organizational safety. It will address the following questions:

  • What are the practical implications of the interactions between the utilitarian ethics and duty ethics viewpoints on safety, and how have these interactions evolved over time?
  • What are (economic) motives for catastrophe and inequality aversion?
  • How can one integrate other safety preferences (e.g. for common fates) into a coherent decision-making scheme?
  • How, if at all, can one reconcile such safety preferences with standard cost-benefit assessments of regulatory policies?

Keywords: regulatory policy cost-benefit analysis

Scientific disciplines: economics

Expected outputs

The envisioned theoretical advancement will be of interest to scholars of welfare economics, operations research, safety engineering, and related disciplines. We will communicate our results in scientific papers, which we intend to submit to top-tier disciplinary journals. The second group of stakeholders will be decision-makers in industrial risk management, who will endorse an integrated and interdisciplinary perspective on the various safety standards in use. To disseminate this perspective, we intend to write a transfer publication in an interdisciplinary journal with broad outreach to practitioners in risk management. This approach should prove to be beneficial for both theorists and practitioners of industrial risk management.

Keywords: risk managers decision-makers

Workplan

The proposed project will bring together an interdisciplinary team of researchers in order to address the above research questions in a coherent way. The project will comprise three tasks:

  1. Literature review. The first task will be the conduct of an extensive literature survey on public preferences for safety and on the safety standards in use. This is more challenging than one might be tempted to believe as the various disciplines contributing to this literature (law, economics, actuarial science, operations research, engineering, etc.) are dispersed and make use of different vocabulary and methods. The survey shall serve as starting point for the theoretical analysis and will result in a review paper that summarizes the state of knowledge in the different disciplines.
  2. Theoretical analysis. In the second task, we will study the relationship between unequally distributed and correlated risks and different preferences for public safety.
  3. Policy implications. The third task will summarize findings from the literature review and our theoretical analysis in order to spell out the policy implications of specific safety standards. In the spirit of Adler et al. (2012), we will analyze their (in)compatibility with the cost-benefit approach commonly used to assess health risk regulations and address contradictions that may arise from their joint application. Based on a number of case study examples and the results of tasks 1 and 2, we shall provide practical recommendations for policy makers on the design of safety standards. These will be communicated in the form of a transfer publication in an interdisciplinary journal.

Associated deliverables

Catastrophe aversion: social attitudes towards common fates
Stakeholder dissemination report Creative Commons BY-NC-ND published on 2016-07-21
In light of climate change and other existential threats, policy commentators sometimes suggest that society should be more concerned about catastrophes. This document reflects on what is, or should be, society’s attitude toward such low-probability, high-impact events. The question underlying this analysis is how society considers a major accident that leads to a large number of deaths; a large number of small accidents that each kill one person, where the two situations lead to the same total number of deaths. We first explain how catastrophic risk can be conceived of as a spread in the distribution of losses, or a “more risky” distribution of risks. We then review studies from decision sciences, psychology, and behavioral economics that elicit people’s attitudes toward various social risks. This literature review finds more evidence against than in favor of catastrophe aversion. We address a number of possible behavioral explanations for these observations, then turn to social choice theory to examine how various social welfare functions handle catastrophic risk. We explain why catastrophe aversion may be in conflict with equity concerns and other-regarding preferences. Finally, we discuss current approaches to evaluate and regulate catastrophic risk, with a discussion of how it could be integrated into a benefit-cost analysis framework.

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Participating researchers

Christoph Rheinberger (Toulouse School of Economics, University of Toulouse, France)

Nicolas Treich (LERNA, University of Toulouse, France) — project coordinator

Olga Spackova (Engineering Risk Analysis Group, Technical University München, Germany)

Daniel Straub (Engineering Risk Analysis Group, Technical University München, Germany)

Carole Bernard (Chair of Mathematical Statistics, Technical University München, Germany)

Funding organizations

MEDDE (France)

FonCSI (France)

Information last updated on 2016-07-21.

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