Risk and Regulatory Policy

Improving the Governance of Risk

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We expect governments to protect citizens from the adverse consequences of hazardous events. At the same time it is not possible or necessarily in the best interest of citizens for all risks to be removed. A risk-based approach to the design and implementation of regulation can help to ensure that regulatory approaches are efficient, effective and account for risk/risk tradeoffs across policy objectives. Risk-based approaches to the design of regulation and compliance strategies can improve the welfare of citizens by providing better protection, more efficient government services and reduced costs for business. Across the OECD there is great potential to improve the operation of risk policy as few governments have taken steps to develop a coherent risk governance policy for managing regulation.  

This publication presents recent OECD research and analysis on risk and regulatory policy.  The chapters discuss core challenges today. They offer measures for developing, or improving, coherent risk governance policies. Topics include: challenges in designing regulatory policy frameworks to manage risks; different cultural and legal dimensions of risk regulatory concepts across OECD; analytical models and principles for decision making in uncertain situations; key elements of risk regulation and governance institutions; the use of management-based regulation to help firms make risk-related behavioural changes; an analysis of the risk-based frameworks of regulators in five OECD countries (Australia, Ireland, Netherlands, Portugal, United Kingdom) and across four sectors: environment, food safety, financial markets and health and safety; and the elements for designing formal guidelines for risk prioritisation, assessment, management and communication.




Annex 3.A1

Recent Trends in the Theory of Decision Making - Towards Procedural Rationality

During the 1960s and 1970s the theory of decision making under uncertainty became part of the standard curriculum in all leading Business Schools and Economics Departments. Now, pervasive uncertainty has always been the most obvious feature of decision processes in business and in economic policy making. Why did it take so long to develop a general theory of such processes, and what is the contribution of this theory to a more rational approach to real decision problems? The answer to the first part of the question is that no general conceptual approach to decision making under uncertainty was possible until the twin concepts of subjective (or personal) probability and of probabilistic utility were introduced in a clear and logically consistent way, and this did not happen until the late 1940s. Once these concepts were well understood it became possible to develop a theory based on three simple principles. First, the uncertainties present in the situation must be quantified in terms of values called probabilities. Second, the various consequences of the feasible courses of action must be similarly described in terms of utilities. Third, that decision must be taken which is expected, on the basis of the calculated probabilities, to give the greatest utility: any deviation from this rule is liable to lead the decision maker into procedures which are inconsistent.


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