A framework for mitigating externalities by their risk profiles

The School Of Statistics and Actuarial Sciences will host this seminar.

The seminar will be presented by R Lange and P Rumpelt. Since the concept of externalities was developed by Pigou in 1932, economists have committed themselves to analysing and trying to prevent the harmful external effects of economic activity on greater society. Despite this academic focus, the problem of externalities has not been completely solved. This point is most notably illustrated by the quandary of climate change, which threatens the continuation of the human species as a whole. This presentation will discuss why current methods for mitigating externalities are not succeeding and shows that a significant problem with the current methods is an improper approach to the handling of uncertainty.  A framework for categorising and mitigating externalities appropriately according to their risk nature will be presented. The application of this framework is exemplified through a case study involving the valuation of a nuclear power plant. This presentation will also suggest that externality regulation should be informed by the risk nature of externalities and demonstrates how this could happen.

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