MEASURING RISK

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• MEASURING RISK
• Decisions in life ruled by Risk and Cost
• Take Hwy at 70 or side road at 35?
• How likely will someone or something be hurt? 
• How much will it cost to prevent?
• Probability versus Possibility

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• RISK ASSESSMENT 
• Facts and assumptions to estimate probability of
  harm.
•  
• Well known versus little known actions.
• Animal tests versus human responses. (example
  carcinogens)
• Estimates of probabilities.
• Not all people respond the same.
• Err on the side of safety.

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• RISK MANAGEMENT 
• Decision making process
• 1.            Which risks have highest
  priorities? 2.                  Cost to reduce
  risks? 
• 3.                  Where to spend
  limited dollars?
• 4.                  How much risk is acceptable?
• 5.                  How to enforce?
• Answers to questions are controversial
• Science is often incomplete
• We often dont understand the risks we accept and
  those we wont.

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• TRUE AND PERCEIVED RISKS
• Daily, common events and infrequent but dramatic
  events.
• Experts and the public often differ.
• public trust of experts
• Degree of risk that is acceptable
• zero risk vs. negligible risk
• voluntary vs. involuntary risk
• What is the proper balance?

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• ECONOMICS AND ENVIRONMENT
•  
• To achieve long-term economic growth while
  improving/sustaining the environment. Whose
  goal?
• Economics are associated with environmental
  issues---Resource Allocation

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• ECONOMIC CONCEPTS
• Goods or services are those things that are
  scarce.
• Resources make goods and services available.
• Supply is the amount of goods or services
  available.
• 1.                  raw materials
• 2.                  amount available
• 3.                  cost to utilize raw material
• 4.                  competition for raw material
• 5.                  feasibility of recycling
  material
• 6.                  societal costs
• Demand is the amount of goods or services that
  are being purchased.
•  
• Supply/Demand curve

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• Demand is the amount of goods or services that
  consumers are willing/able to buy at various
  prices. Supply is amount available.

When supply exceeds demand, must lower prices
to sell product
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• MARKET-BASED INSTRUMENTS
• Supplement but do not substitute
• Require open dynamic market system, other aspects
  of more developed nations.
• 1.                  Information Program
• 2.                  Tradable Emissions Programs
• 3.                  Emission Fees, Taxes and
  Charges
• 4.                  Deposit-Refund programs
• 5.                  Subsidies

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• COST-BENEFIT ANALYSIS
•  1.                  ID the project.
•  2.                  Determine all impacts ( and
  -).
•  3.                  Value of impacts.
•  4.                  Calculate cost/benefit ratio
  -- profits?
• CONCERNS
• Does everything have economic value?
• How can you determine all impacts (both and -)?
• Assumes that money is the most important thing.

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• SUSTAINABLE DEVELOPMENT
• Development that meets the needs of the present
  without compromising the ability of future
  generations to meet their own needs.
• Is economic growth necessary to finance
  investments in environmental improvements?
• Will technological advances solve environmental
  improvements?
• These two approaches view the environment as part
  of the allocation of resources process.
• Are economic and environmental well-being
  mutually reinforcing goals?

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• Economic growth may create its own failing.
•  
• Healthy economies are necessary to invest in
  environmental protection.
• Can economic growth be managed such that the
  environment is not damaged?
• Different abilities in different countries.

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• Sustainable development will require change in
  our economic policy
• GNP currently does not include environmental
  costs and benefits.
• Short term gains often have long term effects. 
• Politicians are on 2 to 6 year terms.
•  
• Investors have 3 month to a year outlook.

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• Sustainability requires
•  1. Use renewable resources.
•  2.  Substitute renewable resources for non-
  renewable ones.
•  3. Recognize the interdependence of the large
  system.
•  4.   Adaptability of system requires diversity.
•  5.   Institutional commitment.

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• EXTERNAL COSTS (Externalities) 
• Expenses generated by producer, but borne by
  someone else. That would be you and I.
• Pollution-prevention costs are passed on to
  others. 
• Sewage treatment
• Pollution costs
• 1.  Expenditures to avoid or remove damage once
  pollution has occurred.
• 2.  Increased health costs or loss of use of a
  resource.

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• THE PROBLEM WITH COMMONS
• When something belongs to everyone, it will
  almost always be aggressively exploited.
• Burn wastes because air is free. 
• Dump in the ocean.
• Fish the ocean.
•  
• Garrett Hardins Tragedy of the Commons

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• ECONOMICS AND THE BIOPHYSICAL ENVIRONMENT 
• Humans change the environment for human gain.
• Population size cause changes such as loss of
  biodiversity and climate change.
• Time for biodiversity to develop.
• Rate for reduction in biodiversity.
• Market decisions cannot take into account the
  inner-connectivity of the environment.
• Uniqueness of some locations is not considered in
  many economic decisions.

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• DEVELOPING NATIONS
• Most ecological diversity now occurs where
  developing nations occur.
• Developing nations borrow money for large
  development projects.
• Debt for Nature exchanges
• Tremendous debt forces short-term returns. 
• Environmental protection is ignored.
• Long term future is jeopardized.