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Über dieses Buch

and Acknowledgments Apparently almost every other month severe industrial hazards invade our living rooms, be it in terms of an ex post report or in terms of an alarming scenario, be it in a remote corner of the world or just in front of our doorstep. Although the invasion of our living rooms is mostly only via printed or electronic media (as opposed to personally experienced tragedies), people in the western hemissphere seem to be concerned, and so are politics and science. Given that welfare-economics has played (or is about to play) a helpful role in terms of analyzing and rationalizing "political" issues (such as the environment, education, or the law) that had been deemed too soft, too psychological, too value-laden, or too political, a book about the economics of catastrophic industrial hazards and their prevention will hardly come as a surprise. However, what are the precise obj ecti ves of this book? For a start, the author intends to argue the welfare-economic relevance of severe industrial hazards, both from a theoretical as well as from a very down-to-earth perspecti ve. Secondly, it shall be demonstrated that and how the problem can be theoretically dealt with, without really departing from standard micro-economics, in particular the "Pareto principle" and, when it comes to very small "collective" physical risks, the well established "von Neumann-Morgenstern" framework.

Inhaltsverzeichnis

Frontmatter

Introduction

Introduction

Abstract
This analysis is set out to perform an economic analysis of severe industrial hazards. For the last two decades or longer, but certainly since Three-Mile-Island and Chernobyl, these hazards seem to have been on a great many peoples’ minds1 and, of course, televison screens2.
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Nomenclature

Nomenclature

Abstract
Before proceeding with the analysis, a few notational conventions and some basic combinatorial results are introduced.
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A General Model of Aversion Against Severe Industrial Hazards

Frontmatter

I. ‘Unlikeliness’ of Physical Risks

Abstract
As suggested in the introduction, the ’unlikeliness-problem’ of EUA is closely related to the ‘Allaisparadox’, ‘certainty effect’, and (as it will be demonstrated later) to a so-called Zeckhauser-paradox, which is particularly relevant for physical risks. In order to clarify the discussion, this chapter will start with a brief review of EUA.
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II. ‘Catastrophiness’ of Physical Risks

Abstract
As mentioned in the introduction, it has been established for a long time (see e.g. J. Ferreira (jr.) and L. Slesin [1976]) that, generally speaking, people display the following physical risk preference-pattern: They ‘prefer’ the prospect of comparatively likely accidents entailing only a few fatalities to the prospect of unlikely accidents entailing many fatalities, given the ex ante expected number of fatalities and thus the individual death probability is equal in both cases.
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III. Likeliness vs. Catastrophiness of Physical Risks

Abstract
In the first two chapters we have identified and discussed three main determinants of an individual’s well being:
  • his wealth position.
  • his individual death probability entailed by the hazard he is exposed to.
  • the catastrophiness of the hazard he is exposed to.
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IV. A Liability Insurer’s Risk Evaluation

Abstract
So far the analysis has concentrated upon the individual evaluation of unlikely, catastrophic physical risks. For this purpose we have looked at the testator, his heirs and his life-insurer. However, they are not the only ones affected. Although we know from the above that no payment in the world can compensate a victim for his death, the operator will be liable for some compensation k. The size of k will depend on many factors and will vary from country to country.
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A Micro-Economic Analysis of Measures Against Severe Industrial Hazards

Frontmatter

I. Risk Evaluation for a ‘Reference Model’ of Industrial Hazards

Abstract
Given the general results of part A, it may be interesting to apply these findings to a particular ‘reference model’ of real world hazards. What should such a ‘reference model’ look like?
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II. Aggregation of Individual Risk/Consumption Preference Patterns

Abstract
The last chapter has been exclusively concerned with individual agents’ willingnesses to pay (option prices) for a lower Φ and θ. As far as the ‘demand side’ is concerned, this knowledge ought to suffice for a welfare analysis of the optimum provison of Φ- and θ- reductions, if Φ- and θ- reductions were private goods. However, from the introduction and chapter A. II it can be conjectured that risk reductions, be it through a reduction of E(μ) or a reduction of the catastrophiness of the hazard, will be polar public goods. Obviously, the ‘publicness’ carries over to reductions of Φ and θ in the ‘reference model’ as these risk-parameters are again assumed to be non-rivaling, non-excludable, not-selfdetermined and equal to all members of the community.
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III. Aggregate Risk-Reduction Cost

Abstract
The willingness to pay for Φ and/or θ reductions is one side of the coin. Yet, we know that the public good ‘physical safety’ will not be a free lunch; on the contrary, enhancing physical safety will draw on the limited pool of resources commanded by society. And even worse, we should not be surprised to learn that the amount of resources necessary for marginal safety improvements (or forgone consumption/saving opportunities) increases with the level of safety or care1.
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IV. Optimal Provision of Physical Safety

Abstract
This chapter purports to derive the conditions of paretooptimal physical safety efforts. Again, let us begin with a single facility equally threatening the lives of the community members. From chapter B.II. we can conjecture that the necessary condition for a (non-corner) optimal solution, i.e. without any potential Pareto-improvement is:1
  • The society-wide marginal option price for Φ- reductions must equal the marginal cost of this reduction.
  • The society-wide marginal option price for θ- reductions must equal the marginal cost of this reduction.
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V. Market Solutions, Failures and Corrections

Abstract
In the last chapter (necessary) conditions for optimum societal safety efforts were derived. It is the purpose of this chapter to look at the market solutions under different legal regimes and to compare them to the societal optimum. For two reasons the items ‘checking for market-failure’ and ‘devising governmental countermeasures’ are not segregated as in the economic research agenda proposed in the introduction.
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Conclusion

Abstract
When concluding ‘The Economic Analysis of Severe Industrial Hazards’ it is perfectly legitimate to ask for the results, the insights, the ‘so-whats’, the output provided by the analysis. After all the input has been considerable in terms of length, formalism and number of economic branches ‘engaged’, namely:
  • economics of life and limb
  • insurance economics
  • cost-benefit analysis
  • environmental economics
  • economics of liability law
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Backmatter

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