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Optimising risk reduction: an expected utility approach for marginal risk reduction during regulatory decision making

Li, Jiawei; Pollard, Simon; Kendall, Graham; Soane, Emma and Davies, Gareth (2009). Optimising risk reduction: an expected utility approach for marginal risk reduction during regulatory decision making. Reliability Engineering and System Safety, 94(11) pp. 1729–1734.

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DOI (Digital Object Identifier) Link: https://doi.org/10.1016/j.ress.2009.05.005
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Abstract

In practice, risk and uncertainty are essentially unavoidable in many regulation processes. Regulators frequently face a risk-benefit trade-off since zero risk is neither practicable nor affordable. Although it is accepted that cost–benefit analysis is important in many scenarios of risk management,what role it should play in a decision process is still controversial. One criticism of cost–benefit analysis is that decision makers should consider marginal benefits and costs, not present ones, in their decision making.In this paper, we investigate the problem of regulatory decision making under risk by applying expected utility theory and present anew approach of cost-benefit analysis. Directly taking into consideration the reduction of the risks,this approach achieves marginal cost–benefit analysis. By applying this approach, the optimal regulatory decision that maximizes the marginal benefit of risk reduction can be considered. This provides a transparent and reasonable criterion for stakeholders involved in the regulatory activity. An example of evaluating seismic retrofitting alternatives is provided to demonstrate the potential of the proposed approach.

Item Type: Journal Item
Copyright Holders: 2009 Elsevier Ltd
ISSN: 0951-8320
Project Funding Details:
Funded Project NameProject IDFunding Body
Not SetNot SetEPSRC (Engineering and Physical Sciences Research Council)
Keywords: regulatory decision making; cost–benefit analysis; ALARP; expected utility theory
Academic Unit/School: Learning and Teaching Innovation (LTI) > Institute of Educational Technology (IET)
Learning and Teaching Innovation (LTI)
Related URLs:
Item ID: 32960
Depositing User: Gareth Davies
Date Deposited: 01 Mar 2012 10:53
Last Modified: 07 Dec 2018 11:05
URI: http://oro.open.ac.uk/id/eprint/32960
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