NDLI: Why is risk aversion unaccounted for in environmental policy evaluations?

Content Provider	Springer Nature Link
Author	Kaufman, ah
Copyright Year	2014
Abstract	U.S. environmental regulations are increasingly influenced by cost-benefit analyses that are performed based on the guidance of the Office of Management and Budget (OMB). The OMB’s Circular A-4 directs Federal agencies to assume “risk neutrality” in conducting regulatory analysis, and in important instances, this guidance is not supported by economic theory. Risk neutrality is computationally convenient, and it can be justified when only the costs and benefits of regulations themselves are uncertain, because these risks are spread across a large population. However, the Circular A-4 does not distinguish between regulations that cause uncertainty and those that reduce pre-existing (i.e. baseline) uncertainty, such as the potential for catastrophic climate change. Basic economic theory shows that risk aversion should be incorporated into evaluations of policies that reduce pre-existing environmental uncertainty. Regulatory analyses generally ignore these risk-reduction benefits, leading to misinformed policymaking. Quantifying risk premiums is difficult and controversial, but no more so than discounting future costs and benefits to present value terms. Similar to how OMB has established discount rates for use in regulatory analyses, a method for when and how to incorporate risk aversion into policy evaluations should replace the blanket guidance for risk neutrality.
Starting Page	127
Ending Page	135
Page Count	9
File Format	PDF
ISSN	01650009
Journal	Climatic Change
Volume Number	125
Issue Number	2
e-ISSN	15731480
Language	English
Publisher	Springer Netherlands
Publisher Date	2014-05-13
Publisher Place	Dordrecht
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Atmospheric Sciences Climate Change/Climate Change Impacts
Content Type	Text
Resource Type	Article
Subject	Atmospheric Science Global and Planetary Change

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
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4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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