1. Integrating Risk Assessment and Benefit-Cost Analysis Richard A. Williams, Ph.D. Managing Director for Regulatory Studies and the Government Accountability Project Mercatus Center at George Mason University

2. Human Behavior and Reducing Population Risk. 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

3. Risk Analysis - Today Risk Assessment Risk Communication Risk Management Cost- benefit analysis

4. Separation of Risk Assessment and Risk Management? Safety analysis Safety analysis Conservative assumptions Conservative assumptions

5. Winston Churchill got 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

6. Risk Management and Benefit-Cost Analysis B/C analysis is analysis of possible decisions (options) B/C analysis is analysis of possible decisions (options) Also should be unbiased information Also should be unbiased information More in common with risk assessment that decision making More in common with risk assessment that decision making

7. Analysis – Cost-Benefit and Risk Assessment Net Benefits not always chosen (unlike safety levels) Net Benefits not always chosen (unlike safety levels) Neither science, both inform decision- making Neither science, both inform decision- making Both are analysis Both are analysis

8. Reasons for One Analysis Benefits = $ Risk Reduction Benefits = $ Risk Reduction Probabilistic risk reductions common to both Probabilistic risk reductions common to both Countervailing risks combine microeconomics and risk assessment Countervailing risks combine microeconomics and risk assessment Easier for managers Easier for managers

9. Combined Risk Analysis Public Health Problem

10. Risk Analysis Format I. Define public health problem ◊ Risk, not solutions ◊ Not too narrow ◊ Not too broad

11. A Risk Analysis Public Health Problem Hazard & Market Failure ID

12. Hazard and Market Failure Identification II. Hazard and market failure ◊ Hazard Identification ◊ Hazard Identification ◊ Risk importance ◊ Risk importance ◊ Market failure ◊ Market failure

13. A Risk Analysis Public Health Problem Hazard & Market Failure ID Control Options

14. III. Control Options Legal Requirements for target risk Legal Requirements for target risk Warning and information labels Information provision Production standards Product Standards PermitsTesting

15. A Risk Analysis Public Health Problem Hazard & Market Failure ID Control Options Baselines

16. Baselines IV. Baselines Producer Practices Consumer Practices Exposure/Risk

17. A Risk Analysis Public Health Problem Hazard & Market Failure ID Control Options Baselines Market Responses

18. Changes in consumer behavior Changes in consumer behavior –Knowledge, practices Changes in producer behavior Changes in producer behavior –Equipment, practices, knowledge, products, packaging, business Direct effects/Ripple effects Direct effects/Ripple effects

19. A Risk Analysis Public Health Problem Hazard & Market Failure ID Control Options Baselines Market Responses Countervailing risk decreases (benefits) Countervailing risk increases (costs) Non-risk costs Non-risk benefits

20. Requirements to Benefits Control Option Behavior Change Costs Benefits Provisions Coverage Time Hazards

21. Countervailing Risks – Costs and Benefits Consumption Risks Consumption Risks Production Risks Production Risks Public/private risks Public/private risks

22. Countervailing Production Risks Supplier Firm Downstream Firm Substitute Firm Compliment Firm Target Firm

23. Implications: Risk Analysis and CV Risks Risk Assessment - No conservative assumptions Risk Assessment - No conservative assumptions Risk Communication – more controversial Risk Communication – more controversial Risk Management Risk Management –No precautionary principle –Uncertainty trumps small risks

24. A Risk Analysis Public Health Problem Hazard & Market Failure ID Control Options Baselines Market Responses Countervailing risk decreases (benefits) Countervailing risk increases (costs) Non-risk costsNon-risk benefits Sensitivity Analysis

25. Summary Risk Assessment and Cost-Benefit Analysis are not/should not be risk management. Risk Assessment and Cost-Benefit Analysis are not/should not be risk management. Good reasons for combining them including benefits, economies of scale and countervailing risks. Good reasons for combining them including benefits, economies of scale and countervailing risks. New framework combines both. New framework combines both.