Course syllabus

Olycks- och miljörisker i ett samhällsekonomiskt perspektiv
Accidental and Environmental Risk in an Economic Perspective

EXTN60, 7,5 credits, A (Second Cycle)

Valid for: 2012/13
Decided by: Education Board 1
Date of Decision: 2012-03-27

General Information

Compulsory for: RH4-rh
Language of instruction: The course will be given in Swedish

Aim

The aim of the course is to apply an economic perspective on various accidental and environmental risks. The identification, quantification and especially valuation of those risks are essential for the dimension and scope of society's investments i security. Economic evaluation methods are an important tool for assessing such investment.

Learning outcomes

Knowledge and understanding
For a passing grade the student must

• have acquired a general understanding of an economic perspective on the concept of risk
• understand how to formulate an economic decision under risk and uncertainty
• be able to understand economic costs and benefits
• have some knowledge of the most common evaluation methods and cost benefits calculations where risk is involved
• be able to identify the difference between a business and an economic perspective on an investment involving risk
• be able to understand the basic principle underlying insurance as a way of transferring risk
• be able to understand the difference between expected value and expected utility
• have gaines insights into how society handle small risks that are expected to occur in the future when those risks are associated with dire consequences
• have an understanding of why individuals do not always act rationally when faced with decisions involving risk and uncertainty

Competences and skills
For a passing grade the student must

• be able to formulate decisions under risk and uncertainty as a game (lottery)
• be able to handle the concepts of risk aversion, risk loving and risk neutrality in decision making situations
• be able to formulate a decision tree in a situation where risk and uncertainty occur in a period stretching across several years and choose a decision path
• be able to undertake present value calculations for various investments in security in both discrete and continuous time and evaluate the results
• be able to explain the meaning of the central concept of "the value of a statistical life" and use the concept in decision making situations
• be able to use various valuation methods for non-market effects such as changes in risk
• be able to formulate a relevant vost benefit analysis for a risk changing event
• be able to independently account for a cost benefit analysis of an investment in secutiry, both orally and in writing
• be able to seek and evaluate knowledge regarding economci evaluation i scientific journals and books
• show an ability to communicate the knowledge gained in the course to decision makers in the private and the public sector
• show an ability to work in a team

Judgement and approach
For a passing grade the student must

Show an ability to identify, analyse and evaluate the economic aspects of regulations and proposals regarding accidental and environmental risks in society

Show an insight into the possibilities and limitations of risk evaluation and its role in a decision making situation

Contents

What do we mean by an economic perspective? Opportunity cost, value, price and other fundamental economic concepts

Rules of behaviour in decision-making for the agents of society

The principles of risk manegemtn such as diversification and insurance

Management of risk and uncertainty as a game or "lottery"

The use of decision trees in the process of making rational decisions where risk is a factor

The difference between expected value and expected utility and the theory of expected utility

Attitudes towards risk with the central concepts of risk aversion, risk seeking and risk neutrality, the value of risk in itself

Risk aversion premia and certainty equivalents

Prerequisites for being able to use expected values when risk is present in society's decisions

Prospect theory, subjective and objective risk, private and public risk, non-rational individual behaviour

Asymmetric information as a problem for efficient risk sharing in society

The concepts of moral hazard and adverse selcetion and the need för socity to adjust behaviour when those phenomena are present

Cost-benefit analysis, its principles, abilities and limitations

From utility to money and from individual to society

Valuation methods for non-market-priced effects such as risk changes in traffic, the environment and health

The cvalue of a statisical life: definition, interpretation, measurement issues and its use in decision.making

Examples of risk valuation in traffic, envornmental and health issues in Sweden

International comparisons of risk valuations.

Examination details

Grading scale: TH
Assessment: Tuition consists of lectures, exercises and seminars, where essays are presented and discussed. The essays are written i small groups. Guest lectures are planned for the course. A written exam takes places at the end of the course. Examination is based both on individual performance and on work carried out in groups.

Admission

Admission requirements:

• VBR180 Risk Analysis Methods, FMS065 Statistical Methods for Safety Analysis

The number of participants is limited to: No
The course overlaps following course/s: MIO120

Reading list

• Mattsson, B. Riskhantering vid skydd mot olyckor - problemlösning och beslutsfattande. Räddningsverket 2000.
• Mattsson, B. Kostnads-nyttoanalys. Värdegrunder, användbarhet och användning. Räddningsverket 2004.
• Supplementary material.

Contact and other information

Course coordinator: Erik Wengström, erik.wengstrom@nek.lu.se
Course homepage: http://www.nek.lu.se