Monday, November 8, 2010

Reader Comment 11-06-10 Value of Life

An anonymous reader posted an unusual comment to my response to another reader comment last week on the adequacy of emergency response plans. It was unusual in that there was no actual commentary, just a link to a journal article, "Valuing the Risk of Death from Terrorist Attacks" (registration required), and quotes the abstract for that article.

Cost of Terror Attack

The article deals with the concept of ‘value per statistical life’, a mechanism for evaluating the value of small risk reductions. The general premise of the article is that this commonly used mechanism may under value the perceived risk from a terrorist attack The abstract from the article notes that may be due to the perception of a terror attack “as more dreaded and ambiguous, and less controllable and voluntary, than the workplace risks underlying many VSL estimates”.

Of course that is the whole purpose of a terror attack, to create fear and dread in the general populous. A successful attack does this by upsetting the general calculus of risk perception. It destroys the generally held perception that risk is controllable; it puts control of risk in the hands of unknown parties.

Now, what does this fairly obvious idea (one of the jobs of academia is to examine obvious ideas to verify their underlying truth) have to do with emergency response planning? The obvious answer is that the perceived increase in the expense of the risk justifies higher expenditures to prevent or reduce that risk.

Cost of Prevention

Now this type calculus is probably a good idea for governments and public agencies. For businesses, however, there is a different measure that must generally be applied to spending decisions; how does this affect profits? While many commentators castigate business for being concerned with profits; that is the whole reason that a business exists. If a business doesn’t make a profit, it goes out of business. The people that worked for the business loose jobs and the owners loose money.

Now in a regulated economy society says that profits are fine, but there are certain societal goals that must be achieved at the same time. But governments must remember that the imposition of these societal goals on top of the business goal does not change the basic reason for the existence of businesses, making a profit. If the cost of achieving societal goals is too high, the business will cease to exist.

The activist counter to that is, of course, that the cost of a successful attack will also drive the business out of business. The problem that as of today the actual risk on a statistical basis of a terrorist attack (successful or otherwise) on any business in the United States is vanishingly small. If we ignore eco-terrorist attacks, there have been no attacks on US businesses (other than airlines) since 9-11. The number of business-years (# of businesses in US x # of years since 9-11) is so large that it is hard to justify any counter-terrorism expenditure for a given business.

Finally, the security experts are sure to point out that once there is an actual indication of a pending attack on a specific business it is just too late to put realistic security measures or risk mitigation measures into place. Besides, having real and recognizable security measures in place makes it less likely that a terror planner will select the facility to attack.

Balancing Risk and Cost

So we have a two part problem. We don’t want terrorists to attack a business (say a high-risk chemical facility) because the consequences would be so high. We don’t want to impose such a high security/mitigation burden on the facility that it would drive the facility out of business. Weighing that balance is a difficult task.

It requires both a discussion in society about what level of risk is acceptable and a discussion with businesses about what cost is too high. Organizations like Greenpeace are good at driving the former, while the Chamber of Commerce and individual companies are good at expressing the latter. But both groups need to participate in both parts of the discussion. Otherwise, the expression of societal costs and business costs will be placed in different, non-comparable terms; the classic apples and oranges comparison. And there can be no reasonable resolution to that comparison.

So, as we start to think about the start of the 112th Congress in about three months, we need to think about how we are going to address these issues. Are we going to continue to have the two sides yell at Congress, or are we going to see some sort of dialogue between the two sides to work out a set of reasonable compromises to solve this contentious issue?

Remember, it will be too late to resolve the issues after an attack has occurred and thousands, perhaps hundreds of thousands, are injured or killed.

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