Edited by Robert U. Ayres and Leslie W. Ayres
Chapter 37: Industrial ecology and risk analysis
Paul R. Kleindorfer Risk analysis in industrial contexts consists of four integrated processes: (a) identifying underlying sources of risk; (b) determining the pathways by which such risks can materialize; (c) estimating the potential consequences of these risks under various scenarios; and (d) providing the means for mitigating and coping with these consequences. Speciﬁc risks, once identiﬁed, are usually characterized by the probability of their occurrence and the magnitude of their consequences, but many other attributes of risks may be of interest to individuals aﬀected by these risks. Risks can have both positive and negative outcomes and can occur in any domain of a company’s operations, from engineering to ﬁnance. A great deal of work in corporate ﬁnance and insurance has gone into the design of eﬃcient risk management instruments for risks that can be monetized (for example, Doherty 2000) and, to the extent that the consequences of these risks are borne by the owners of an enterprise, there are strong incentives for managers to make eﬃcient choices in balancing risks and returns. This is not usually true for industrial risks having safety, health or environmental (SHE) impacts, since these impacts are often borne by the ecosystem and by uninvolved third parties, including future generations. Thus, for SHE risks, market forces are not usually suﬃcient to motivate a proﬁt-oriented company to operate eﬃciently. Achieving eﬃcient trade-oﬀs here requires instead that industrial practice be tempered by regulation and public participation. Exactly how...
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