1. Risk and Cost: Elements of Decision Making Chapter 16

2. Outline Measuring risk Risk Assessment - Risk Management True vs. Perceived Risk Economy and the Environment –Cost-Benefit Analysis –Sustainable Development –External Costs Common Property Resources

3. Measuring Risk Two primary factors in most decisions –Risk –Cost Risk analysis involves defining a mathematical probability relating the likelihood of an event. (adverse effect)

5. Risk Assessment Environmental risk assessment uses facts and assumptions to estimate the probability of harm to human health or the environment that may result from exposure to pollutants, toxins, or management decisions. Over the past decade, the largest impact has come in practices involving carcinogens.

6. Risk Management A decision-making process that includes: –Assigning priorities to different risks. –Determining necessary funding to reduce risks to an acceptable level. –Deciding where greatest benefit will be realized from limited funds. –Determining acceptable level of risk. –Planning and enforcing monitoring.

7. Politics of risk management often focus on the adequacy of supporting scientific evidence. Defining the extent of the problem helps determine the rest of the management process. –Below a certain risk threshold, action may be unnecessary.

8. True and Perceived Risks People often overestimate the frequency and seriousness of sensational causes of death, and underestimate the risks from familiar causes. Elimination of all risk is impossible An on-going dilemma is: Should the govt. spend the most money on areas with the greatest impact, or areas where the most people are upset?

9. Risks of Death Deaths per million hours of exposure –Mountain Climbing40,000 –Cigarette Smoking 3,000 –Swimming 2,560 –Air Travel 500 –Struck by Lightning 100 –Living near nuclear power plant 0.5

10. Economics and the Environment Economic Concepts –Economic good/service is anything defined as scarce. –Supply is the amount of the good/service available for purchase/consumption. –Demand is the amount of the good/service consumers are willing to buy at various prices. –Supply / Demand curve

11. Reducing Environmental Damage Market-Based Instruments Provide incentive to reduce pollution by imposing costs on pollution-causing activities. Five basic programs: –Information Programs - make clear the personal interests in pollution reduction. –Tradable Emissions Permits - Give companies the right to emit specified amounts of pollutants.

12. –Emission Fees,Taxes, Charges - Make environmentally damaging activities expensive. –Deposit-Refund Programs - Place a surcharge on the price of products. –Subsidies - Monetary incentives designed to reduce product costs.

13. Cost-Benefit Analysis Used to evaluate environmental policies Four steps: –Identify the project –Determination of all impacts –Determination of the value of impacts –Calculation of net benefit

14. Concerns with Cost-Benefit Analysis Not everything has an economical value Objects or resources devoid of economic value may only survive if and when they become “economic”

15. Economics and Sustainable Development Differing schools of thought: –Economic growth essential to finance pollution prevention and env. quality investments –Economic and environmental well- being are mutually reinforcing Bottom Line: –Sustainable growth and sustainable- use are not interchangeable terms.

16. External Costs External costs are expenses related to a product that are borne by someone other than the individuals using the resource. Pollution-control costs include pollution prevention as well as pollution costs. Pollution-prevention costs can often be factored into life - cycle analysis.

17. Common Property Resource Problems Common (public) ownership essentially means no owner. Common ownership makes it virtually cost-free for anybody to cause pollution. –cattle grazing on western public rangelands Garret Hardin - Tragedy of the Commons

18. Summary Risk assessment is using facts and assumptions to estimate probability of harm Politics of risk management focus on adequacy of scientific evidence Economy and Environment are inseparable External costs are produced when the costs of pollution are imposed on society Tragedy of the Commons

19. Risk Management: Which is Most Important Short-Term or Long-Term hazards ?