The International Yearbook of Environmental and Resource Economics 2003/2004

The International Yearbook of Environmental and Resource Economics 2003/2004

A Survey of Current Issues

New Horizons in Environmental Economics series

Edited by Henk Folmer and Tom Tietenberg

This major annual publication provides a state-of-the-art survey of contemporary research on environmental and resource economics by some of the leading experts in the field.

Chapter 2: Choosing environmental risks

Thomas D. Crocker and Jason F. Shogren

Subjects: economics and finance, environmental economics, environment, environmental economics


Thomas D. Crocker and Jason F. Shogren* INTRODUCTION Over the past decade, we have argued that environmental risk is endogenous. By endogenous risk, we mean that people have some control over the probability and severity of the environmental risks they confront. They defend themselves; they invest scarce resources to increase the odds that good things happen and bad things do not. While we appreciate that both nature and the government affect the level of personal risk, we have maintained the classical liberal viewpoint that neither biology nor collective action is destiny. Individual choices affect nature and collective action just as nature and governments affect our private choices. We go so far as to argue that endogenous risk arises whenever economic systems and environmental systems are jointly determined, which seems to apply to nearly all environmental questions. Examples of endogenous risk in which a person can choose to alter environmental outcomes abound. Common sense and everyday evidence demonstrate that human actions and reactions make environmental risks non-synonymous with environmental hazards. Most people take care of themselves. When confronting risks from pathogens, people self-protect by washing their hands, storing food, and cooking food well. They buy bottled water if they suspect their drinking water is polluted. They apply sunscreen to protect their skins from UV radiation. The success of collective mandates to promote safety depends on individual choices. Use of auto seat belts reduces both the probability and the severity of any injury but their mandatory installation cannot guarantee...

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