Using risk assessment, benefit-cost analysis, and real options to implement a precautionary principle.
Risk assessment is an established methodology for environmental and public health issues. However, economists' core approach to both risk assessment and risk management, benefit-cost analysis, often fails to transparently evaluate variability in a way that is a trademark of quantitative risk assessment. Concurrently, environmental advocates are proposing new management criteria based on a vaguely framed "Precautionary Principle." This manuscript demonstrates how risk assessment techniques for characterizing variability, benefit-cost analysis, and decision-making criteria under uncertainty and irreversibility can be combined. The result is a quantifiable, case-specific, and risk-dependent "precautionary" threshold for action compared to standard benefit-cost approaches. The Clean Air Act and the regulation of genetically modified corn provide applications.
Farrow
Scott
S
scott.farrow@verizon.net
D000397:Air Pollution / Q000009:adverse effects / Q000331:legislation & jurisprudence; D003362:Cost-Benefit Analysis; D004782:Environmental Health; D030841:Food, Genetically Modified; D006801:Humans; D030821:Plants, Genetically Modified; D011634:Public Health; D011640:Public Policy; D018570:Risk Assessment; D012308:Risk Management; D003313:Zea mays / Q000235:genetics