Section8 - Risk

Section8 - Risk - Section 101/102 March 28, 2011 EEP...

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Section 101/102 EEP C101/ECON C125 March 28, 2011 GSI: Anna Spurlock Today: Risk and Value of a Statistical Life Risk Assessment Models: Risk: is the probability of a bad outcome: Risk=Prob(Bad Outcome) Risk generating function: is the relationship between risk and the process that causes it (i.e. things that increase or decrease the probability of a bad outcome. Bad Outcomes: Human health (death/disease), environment (danger to species, etc.), food secu- rity (starvation). Economics and Health Application: Example: Pesticide contamination and harm Risk = f 1 ( A ) · f 2 ( B ) · f 3 ( C ) · X f 1 ( · ) = Initial exposure on the farm f 2 ( · ) = Exposure to public f 3 ( · ) = Dose/Response A = Damage control activity on site (application gear and technique) B = Averting behavior of individuals (washing fruit at home before eating) C = Medical control of pollution dosage (medication/treatment) X = Quantity of pesticides applied For a given unit of pesticide applied, the risk is: Risk = f 1 ( A ) · f 2 ( B ) · f 3 ( C ) 1

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Policy Scenario 1: Suppose under current regulations and policies the distributions within the risk generating function are as follows: f 1 ( A 0 ) = 0 . 5 prob = 0 . 5 1 prob = 0 . 5 f 2 ( B ) = 0 . 1 prob = 0 . 5 0 . 2 prob = 0 . 5 f 3 ( C ) = 0 . 1 prob = 0 . 5 0 . 2 prob = 0 . 5 Interpretation: taking f 1 ( · ) as an example. This says that there is a ﬁfty percent probability that the pesticides applied on the plants will contaminate half the fruit and a ﬁfty percent probability that it will contaminate all the fruit. Risk = f 1 · f 2 · f 3 with probability prob ( f 1 ( A 0 ) = f 1 ) · prob ( f 2 ( B ) = f 2 ) · prob ( f 3 ( C ) = f 3 ) Possible risk outcomes given this risk generating function: Risk 0 = 0 . 5 · 0 . 1 · 0 . 1 = 0 . 005 prob = 0 . 5 · 0 . 5 · 0 . 5 = 0 . 125 0 . 5 · 0 . 2 · 0 . 1 = 0
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This note was uploaded on 06/06/2011 for the course ECON 125 taught by Professor Zilberman during the Spring '11 term at University of California, Berkeley.

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Section8 - Risk - Section 101/102 March 28, 2011 EEP...

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