Chapter 1. Risk and Risk Regulation Principles

CONTENTS

SUMMARY……………………………………………………………………….3

INTRODUCTION………………………………………………………………….4

Chapter 1. Risk and Risk Regulation Principles………………………………….5

Chapter 2. The Rational for Risk Regulation……………………………………..10

Chapter 3. Methods of Risk Regulation…………………………………………16

CONCLUSION…………………………………………………………………...25

LITERATURE…………………………………………………………………..26

SUMMARY

This paper is related to the problem of risks and risk regulation. The principles of risk regulation are considered and analysed. The rationale for risk management are also discussed. Finally, the methods of risk regulation are described. Part of the paper focuses on the problem of comparison of traditional pragmatism and the cost-benefit standard, their advantages and disadvantages, and, in addition, the role of the public in risk regulation.

Данная работа посвящена проблеме рисков и регулирования рисков. Нами были рассмотрены и проанализированы принципы регулирования рисков. В работе были описаны основания регулирования рисков. И, наконец, были изучены способы регулирования рисков. Часть работы посвящена проблеме сравнения традиционного прагматизма и метода затрат-выгод, их преимуществ и недостатков, и, кроме того, роли общественности в регулировании рисков.

INTRODUCTION

The landmark legislation that Congress enacted during the 1960s and 1970s to protect the environment and individual health and safety has come increasingly under attack in the last two decades. Collectively, this legislation is known as “risk regulation” because it addresses the risk of harm that technology creates for individuals and the environment. Employing a utilitarian philosophy and analytical tools such as cost-benefit analysis, the critics claim that risk regulation is excessive and irrational, wasting millions of dollars that could be put to more productive uses. Supporters of risk regulation deny these claims, and they argue that cost-benefit analysis is inappropriate for evaluating risk regulation. The supporters, however, do not employ a systematic theme similar to the critics’ use of utilitarianism. Unlike the critics, who are all singing the same tune, the supporters of risk regulation have appeared to be singing different tunes.

Risk regulation appears to lack a common theme for several reasons. Congress clearly rejected utilitarian premises as the basis for the risk reduction legislation, but it did not specify another unified set of premises as the basis for the legislation. The legislation also appears to be disjointed because it employs a number of different regulatory standards, rather than basing regulation on a common cost-benefit standard. It is also difficult to see a universal basis for risk regulation because of its complexity. The relevant statutes take up hundreds of pages in the U.S. Code.

As academics who have written about risk regulation for the past twenty years, and who have participated in the debate over the wisdom of current risk regulation, we were challenged by the apparent lack of a unifying scheme or set of ideas that may explain risk regulation. There are environmental philosophies that support important aspects of risk regulation, but risk regulation protects consumers and workers in contexts that do not relate to environmental protection. Moreover, important risk regulation statutes, such as the Clean Air Act, seek to protect both the environment and the public health. Environmental philosophies can explain this health protection as an effort to return the environment to its prior, cleaner status (or to prevent its deterioration), but people also directly value the act’s public health goals.

Chapter 1. Risk and Risk Regulation Principles

In pragmatism, public policy should reflect widely shared values that arise from a society’s political culture and history. Because pragmatism proceeds without foundations, it considers the extent to which different social values impact a given problem and what solutions they may require. There is no basis for ignoring a value that is an important part of a country’s political culture. The test of the wisdom of a solution to a problem is the extent to which it accommodates social values that are implicated by the nature of the problem. When these values conflict, pragmatism attempts the difficult task of finding solutions that accommodate conflicting values to the greatest extent possible.

Risk regulation inevitably involves a trade-off between the protection of individuals and the environment, and the costs of providing such protection. In other words, there is a value conflict – how does one decide between protection and cost? One way of deciding how to make this trade-off is to use a cost-benefit decision-making standard. This method would protect individuals and the environment up to the point where the economic costs of doing so are greater than the economic benefits of such protection, as these are conventionally measured using economic measurement techniques. Many critics of risk regulation seek adoption of this approach. Congress, however, has almost universally rejected the use of a cost-benefit standard to determine the trade-off between protection and the costs of protection. Instead, Congress generally employs two alternative techniques: constrained balancing and open-ended balancing.

Our argument is that the employment of these alternative techniques by Congress is distinctly pragmatic. It is pragmatic because these alternative methods do a better job of reconciling the conflicting values at stake in risk regulation decisions. These alternatives are preferable to a cost-benefit standard because they better recognize the fundamental value of protecting human life, avoiding damage to individuals, and preserving and improving the environment in which we live. The goal of these alternatives is to maximize protection of individuals and the environment to the extent possible consistent with taking economic costs into account.

This goal – the maximum level of protection to the extent possible – is more consistent with widely held fundamental social values than an economic decision-making standard. Under a cost-benefit standard, harm to individuals or the environment does not warrant any special consideration beyond the economic value of preventing additional deaths or environmental damage revealed by market transactions. The objective of this economic approach is to achieve the “optimal” level of injury, death, and environmental degradation. In short, there is no recognition that for most people the protection of human life and the environment has a fundamental value that is unrelated to economic measurements. By comparison, existing laws recognize these important shared values. Rather than seeking the optimal level of fatalities, injury, or environmental damage, the current policy seeks the maximum level of protection consistent with taking economic costs into account. In short, existing policy seeks to do the “best we can” to protect individuals and the environment, rather than treating individuals and the environment as economic units whose protection is determined by utilitarian calculations.

Opponents of risk regulation raise the objection that risk policy has been unsuccessful because current policies have produced economic costs greatly in excess of their economic benefits. A pragmatic approach to risk regulation must take these allegations seriously because economic efficiency itself is an important social value. We examine these claims of excessive regulation and find them unpersuasive. For the reasons that we will discuss, the calculation of costs and the benefits of risk regulation can be extremely difficult, and reasonable estimates often vary widely. The critics choose valuations that support their criticisms, but other equally plausible evaluations indicate that risk regulation generally meets its objective of maximum protection consistent with taking costs into account.

Current laws seek to reconcile, as best we can, the cost of human and environmental protection with the recognition that protecting human life and the environment is invaluable. This approach is distinctly pragmatic because it honors the fundamental value of human and environmental protection without ignoring the costs that such protection entails. In other words, it attempts the difficult task of finding solutions that accommodate fundamental social values and the cost of protection to the greatest extent possible.

In pragmatism, the value of a policy is dictated by its success under actual conditions rather than by its consistency with theoretical precepts. As noted earlier, pragmatists consider a belief to be true when “holding the belief leads us into more useful relations with the world.” A pragmatic approach to risk regulation therefore rejects as impractical the “comprehensive analytical rationality” sought by the critics of risk regulation. Instead, it starts from the central insight of the literature on organizational decision-making that “bounded rationality” inevitably applies in the contexts in which organizations actually operate.

The “behavioral” school of organizational decision-making, led by Herbert Simon and James March, originated the idea that institutional decision-making is subject to “bounded rationality.” Simon’s essential insight was that decision-making in any institution is “bounded” by time, resources, and cognitive constraints that make it virtually impossible to verify that the solution chosen is optimal. In other words, an effort to find the “best” solution to a problem will be hindered by time and cost constraints that limit the search for alternative solutions and information for measuring which solution is better. In addition, individuals are subject to significant cognitive limitations that restrict their ability to make the judgments necessary to pick an optimal solution.

The impossibility of engaging in comprehensive rationality forces individuals to engage in what Simon called “satisficing,” which involves finding “a course of action that is satisfactory or good enough.” To satisfice is to take into account “just a few of the factors of the situation regarded as most relevant and crucial.” Thus, the best that organizations can do is to rely on habits, practices, and tests, such as “rules of thumb” or “heuristics,” that take into account real-world limitations. Although organizations do not employ comprehensive rationality, satisficing is rational because the organization is attempting to secure its goals in the face of the limits on human knowledge and reasoning. Thus “behavior in organizations is, if not wholly rational, at least in good part intendedly so.”

In light of bounded rationality, when the critics of risk regulation argue that risk reduction should be controlled by a cost-benefit standard, they cannot claim as an advantage that this methodology accomplishes comprehensive rationality or that it represents the “optimal” solution to balancing costs and benefits.

Although cost-benefit analysis cannot accomplish comprehensive rationality, its supporters who recognize this limitation argue that it still should be used to decide regulatory issues, although its limitations must be taken into account. This presents a pragmatic issue. Under conditions of bounded rationality, is a cost-benefit standard more likely than current approaches to improve the policy process in terms of the aims that Congress has adopted for risk regulation? The reality of bounded rationality and other insights of the organizational literature support the current laws over reliance on a cost-benefit standard.

This is not to say that pragmatic administration would ignore what risk analysis, cost-benefit analysis, or other analytical techniques might teach us in a particular situation. Under pragmatism, current beliefs are always open to revision in light of new knowledge or arguments. A pragmatic approach would change how these sources of information inform risk regulation in recognition of their limitations in informing public policy analysis.

Although current risk regulation provides for an incremental system of regulation, it should do more to allow policy-makers to adjust policies, correct mistakes, and take into account new scientific and technological developments. At the present time, there is too much emphasis on trying to perfect regulatory decisions on the front end, at the time when agencies promulgate regulations that require risk reduction. The risk regulation process would be more incremental if regulators made adjustments on the back end, by adjusting the impact of regulations through time extensions, waivers, rule amendments, and other forms of ex post alterations. The regulatory process could also be made more incremental if agencies developed better procedures for review of existing regulations.

The existing approaches to risk regulation are hardly perfect. Critics have succeeded in exposing some of the maladies of risk regulation for all to see, and from a distance their alternative approaches may look preferable. The enthusiasm for reform is augmented in some cases by an ideological attachment to the underlying theory of the reform. Economic analysts, for example, endorse a cost-benefit standard because it is consistent with their utilitarian outlook. With its instrumental emphasis, however, pragmatism requires a close examination of both the existing approach and the approach that critics favor to replace it. Rather than relying on the theoretical advantages of changing an existing approach, pragmatism requires evidence of the superiority of that change.

Pragmatism embraces the potential for reform because it is also open to new evidence and argument about the desirability of existing arrangements. Nevertheless, on the basis of the existing evidence, we are not prepared to endorse wholesale reform of risk regulation. The policy literature fails to show the clear superiority of many reforms popular with critics of risk regulation. A pragmatic approach is skeptical about wholesale reform for another reason. The regulation of human and environmental risk is extraordinarily diverse and complex. What works in one situation may be totally inappropriate in another. Thus reforms may hold great promise in one situation but not another.

A pragmatic approach to risk regulation recognizes the necessity of administrative discretion and flexibility. Pragmatism does not leave bureaucracy unchecked, but it recognizes that, in comparison to other governmental decision-makers, administrators are in the best position to implement risk policies, because they are in the best position to exercise the judgment that risk regulation inevitably requires.

A pragmatic approach to risk regulation understands the reality that regulatory decisions normally involve choices by regulators that are policy, rather than scientific, issues. As discussed earlier, it is often impossible to determine which policy choice is optimal, because of limitations of knowledge, time, and understanding. For this reason, pragmatism favors incremental decision-making and experimentation. Even with these adjustments, regulatory decision-making inevitably requires individual judgment. As a matter of relative competence, regulators are in a better position to exercise the necessary judgment than other governmental decision-makers, including the President’s staff and individual members of Congress. The reason is that regulators operate within a critical community of inquiry in an agency that is devoted to and specializes in the regulatory issues faced by the agency. This agency community is simply more acquainted with the day-to-day details and difficulties of regulatory decisions than the communities of inquiry that operate in the White House, Congress, and the federal judiciary, which are not specialized in the same way.

No one can deny that regulators sometimes use their flexibility and discretion in ill-advised ways. Pragmatism therefore seeks to preserve administrative discretion and flexibility, while making regulators accountable to elected officials and the public. This is a difficult balancing act, because it requires oversight by elected officials and judges of agency decisions that is neither too intrusive nor too lenient. We consider efforts by critics of risk regulation to increase regulatory oversight by elected officials and the courts. Critics look to these overseers to correct the irrational risk policies that they believe agencies produce. In assessing these efforts, our guiding principle is that of relative competence. Agencies should have discretion and flexibility to make difficult policy decisions for which regulators are likely to have more experience and expertise.

Pragmatism believes that good public policy results from open debate, inquiry, implementation, and re-evaluation. As discussed earlier, Dewey regarded the state as analogous to an ideal scientific society in which citizens are engaged in an ongoing experimental search for “an increasingly durable conception of the public order.” Thus pragmatism favors administrative arrangements that promote public participation in risk decisions and disfavor arrangements that hinder it. We consider methods of political and judicial oversight and how they measure up against this characteristic.

As noted earlier, the promotion of public participation in risk regulation was an important achievement of the consumer and environmental movements during the 1960s and 1970s. The critics of risk regulation have sought to reduce citizen access in response to their perception that risk regulation is overly sensitive to the irrational demands of the public for protection. A pragmatic system of risk regulation is suspicious of such efforts. Dewey believed in the “capacity of human beings for intelligent judgment and action if proper that is, democratic conditions are furnished.” A key condition was the ability of individuals to converse freely. Dewey predicted that “anything that blocks communication engenders ‘antagonistic sections and factions’ and undermines democracy.”

We do not think that pragmatism’s commitment to being open-minded requires one to abandon passionate beliefs. Pragmatism does not require a community to give up its strong commitment, even its passionate commitment, to its important social values. We strongly believe in the protection of individuals and the environment. We regard the value of human life and the environment as fundamental. The fact that we acknowledge the economic costs of achieving this protection does not lessen our commitment to protection. It does indicate that, as pragmatists, we understand the reality that no society can achieve absolute protection of its citizens or its environment. Thus pragmatism requires us to accommodate concerns about costs without giving up our strong belief in the intrinsic value of human life and protection of the environment, and to convince others to do likewise.

Further, pragmatism does not require a community of inquiry to regard every argument as worthy of its attention. Pragmatism entails practical discourse and practical judgment. Based on this process, a community is entitled to reject an approach, belief, or solution as inappropriate or unconvincing. While it is necessary to accommodate important social and conflicting values, a community is entitled to conclude that one way of reaching an accommodation is better than others. We strongly believe that the pragmatic method leads to the conclusion that the existing structure of risk regulation is a better way of accommodating concerns about the cost of risk regulation with conflicting social values than the economic approach favored by so many. We also strongly believe that the evidence cited by the economic critics of risk regulation, when carefully considered, is unpersuasive. Readers, of course, will reach their own conclusions.