Search

Abstract: In various industries it is common to use risk acceptance criteria to support decision-making. The criteria are seen as absolute in the sense that measures need to be implemented if the criteria are not met. In Norway the petroleum regulations state that the operator has a duty to formulate risk acceptance criteria relating to major accidents and to the environment. This practice is in line with the internal control principle, which states that the operator has the full responsibility for identifying the hazards and seeing that they are controlled. In this paper we discuss the rationale for this practice. The expected utility theory, which is the backbone for all economic thinking, is used as a basis for the discussion. We show that if risk acceptance criteria are to be introduced as a risk management tool, they should be formulated by the authorities, as is the common scheme seen in many countries and industries, for example in the UK. Risk acceptance criteria formulated by the industry would not in general serve the interest of the society as a whole. [Copyright &y& Elsevier]

This paper deals with derivation and estimation of the risk preference function in the presence of output price uncertainty. The derivation depends neither on a specific parametric form of the utility function nor on any distribution of output price. The risk preference function is flexible enough to test different types of risk behavior (e.g., increasing, constant, and decreasing absolute risk aversion). We also test for asymmetry in the distribution of output price, which appears in the risk preference function. Moreover, we allow heterogeneity in production technology. Parameters of production technology and risk preference function are jointly estimated using the system of equations derived from the first-order conditions of expected utility of profit maximization and the production function. The estimated parameters of the risk preference function are used to calculate absolute, relative, and downside risks for each producer. A panel data on salmon farming from Norway is used as an application. [ABSTRACT FROM AUTHOR]