Risk, Policy and Complexity

Abstract

The project will continue to address the methodological and policy issues underlying problems of environmental and social risk management, with an added emphasis on dealing with their complexity. In close collaboration with other IIASA projects, methodologies will be developed and applied to problems characterized by nonlinear consequences, surprise and multiple dimensions. Not only physical complexity, but also the social complexities of environmental risk management will be addressed. Specifically, a conceptual framework and empirical investigations of "fairness'' in sharing the burdens for reducing environmental risks at the local and national, international and global levels will be a part of the research agenda.

Introduction

The Risk, Policy and Complexity Project will continue focusing on environmental and social risk policy issues, but with an added emphasis on dealing with their complexity. This complexity is manifest in the physical characteristics of today's environmental issues as well as in their social determinants and responses.

An important part of dealing with the complexity of risk problems is developing models for their description and methodologies for analyzing policy alternatives. The new thinking in risk management goes beyond concepts of risk estimation and the static balancing of marginal costs and benefits towards a more dynamic concept of risk management. This concept has existed in theory, but has been impeded in practice by problems of estimating risk functions in the context of large-scale, complex systems with the incumbent problems of indivisible consequences, discontinuities and potential catastrophic effects. An aim of the project is to contribute to a genuine integrated and dynamic approach to environmental risk problems by developing methodologies that are capable of integrating different policy options, policy instruments, and adapting to new information as policies are implemented.

Modern technological societies are vulnerable to failures, accidents and irreversible consequences, especially as economic forces create broad structural changes in the distribution of populations, production centers and wastes. Analysts can contribute to the development of more resilient and less vulnerable societies by developing new approaches that recognize the mutual interdependencies of socio-economic and environmental systems. The large dimensions of these systems will raise difficult conceptual and methodological issues, and one goal of this project is to develop a theoretical basis for decomposing complex systems into manageable subsystems.

Among the broadly social issues that contribute to the complexity of many environmental policy debates, concerns for fairness and equity rank near the top. Policies that are economically efficient and sound in all other respects may be doomed to failure if they are thought to be inequitable in their distribution of benefits and burdens. This is true across a broad spectrum of controversial risk issues. Local controversies, such as the impasse facing most industrialized countries in siting needed waste facilities or funding the clean up of toxic waste sites, are intractable mainly because of difficulties in reaching acceptable procedures on distributing the cost and risk burdens. Fairness issues are equally important for resolving environmental risk problems at the transboundary and global levels. Many market processes that promote international or interstate efficiency, e.g., interstate compacts for hazardous waste disposal, tradeable permits for reducing SO₂ and joint implementation of CO₂ reductions, encounter strong resistance because they are perceived as unfairly allocating national or state obligations. Even the efficiency gains from western investment in Central and Eastern European pollution abatement are questioned by those who feel this practice misallocates responsibility for pollution abatement. Issues of transboundary risk management are urgent given the unprecedented number of environmental risks affecting large regions and even the globe. At the same time, there is little experience with truly effective regional and international institutions for dealing with transboundary risks, and there are demands for more local autonomy, decentralization and participation in environmental issues. Not unlike domestic risk issues, negotiating policies that are considered both efficient and fair is a formidable task, especially since countries may be reluctant to reveal their true costs of risk abatement and because they may differ in their ability to pay and their accumulated responsibility for the damages. Fair distribution of the risk/cost burden is also topical to nonenvironmental, social risk issues. The urgent reform of social security systems throughout Europe and North America, for instance, will require a broad social consensus on individual and social responsibility for the cost and risk burdens.

While the importance of fair process and outcome in risk debates is recognized, there is little conceptual and empirical research that can guide policy discussions for specific environmental and social issues of risk sharing. Important questions concerning the different and usually competing views on the fairness of the procedures and alternatives often remain unanswered, and without this information, constructing robust policies that command general support is problematic. Building on a large interdisciplinary literature, the aim of the project is to develop a conceptual basis for understanding views on fair process and outcome, to apply this base to empirical studies of fairness in selected domestic and transboundary issue areas, and to investigate the question whether people, groups and institutions have stable views on fairness across different risk contexts.

This project can be viewed as building on IIASA's strengths in optimization and dynamic systems, and on its long record of multidisciplinary social science research in the risk area, to develop and explore applications of innovative methodologies to physically and socially complex risk management problems. The project is committed to working with other IIASA projects. The research is published in peer reviewed journals as a way of reaching the widest possible scientific audience for its work.

Objectives

The objectives of the research are to develop and apply new methodologies for coping with complex environmental and social risk problems. The focus is on the development of novel methodologies for structuring and analyzing policy issues that are characterized by nonlinear consequences, surprise and multiple dimension, as well as on the conceptual and empirical investigation of fairness and burden sharing of environmental risk issues at the local, transborder and global levels.

Approach and Activities

In 1996, the project will continue to develop appropriate methodologies to deal with surprise and nonlinearities in risk systems, as well as to deal with the large dimensionality of many environmental risk problems. The project will also continue to act as a bridge between the mathematics and optimization work at IIASA and the applied environmental work. This will require further methodological development of nonsmooth stochastic systems analysis and optimization in order that these techniques can be usefully applied to real-world problems.

Continuing collaboration with the Transboundary Air Pollution Project, decentralized pollution control strategies, including taxes and tradeable permits, will be further investigated. The dynamics and complexity of regional land cover change is also a topic of investigation in collaboration with the Modeling Land-Use and Land-Cover Changes in Europe and Northern Asia Project. Since this model must take account of a large number of variables, environmental constraints and risks, the Risk, Policy and Complexity Project will provide methodological support. A direct application of this study is to examine land use practices in contaminated areas of the Ukraine.

In collaborative work with the Regional Material Balance Approaches to Long-Term Environmental Policy Planning Project and jointly with the Dynamic Systems and Optimization Under Uncertainty Projects, it is also planned to develop a methodological framework to control accumulative processes in the presence of extreme environmental regimes. This project is a new initiative, and its idea is to study aggregation principles so that the analyst can decompose large-scale, stochastic systems into easily manageable subsystems. In this same vein, the project intends to study the risks associated with energy developments, and especially the risks of overestimating costs. This is a joint initiative with the Environmentally

Compatible Energy Strategies Project. Finally, a systematic study of the so-called "exchange optimization processes'' will be undertaken jointly with the Dynamic Systems project. The idea of these processes is that environmental externalities and social costs are controlled by a process of sequential trading.

In August, 1995, a planning meeting on ''Risk and Complexity'' was held to address the issue of dealing with social complexity in policy analyses, including integrated assessment and modeling. A publication that builds on the presentations and discussions of this meeting is being considered as a way of promoting a dialogue on social complexity in a policy setting.

The Risk, Policy and Complexity Project is also embarking on a collaborative research program to develop a conceptual framework and empirical tests for examining public views on fairness for specified social and environmental issues. The project hopes to serve as a center for studies on fairness and burden sharing in many topical contexts, including: (1) siting waste facilities, (2) cleaning up and coping with contamination, (3) transboundary risk management, including inter alia, air pollution, water pollution, and nuclear risks, (4) reforming social security systems, and possibly in the future (5) anticipating global climate change.

Specific areas of in-house research will be targeted. Beginning with the local/national issues, it is planned to develop the conceptual and empirical bases that might be applicable to later studies on the international issues. In fact, one objective of the research program is to determine if insights at the local level can be transposed to controversial issues at the international and global levels.

The project plans to concentrate in 1996 on the following applied policy areas:

1. Siting hazardous waste facilities. The project is in the process of completing collaborative work on the problem of articulating and implementing fair procedures and outcomes for siting unwanted, hazardous facilities. A set of papers, including in-house research, has been accepted for an IIASA special edition of the journal 'Risk' on "Fairness and Siting''. This work will be presented at an IIASA session of the annual meeting of the American Association for the Advancement of Science to be held in Baltimore in February, 1996. As a continuation of this research, and in collaboration with the Baden-Würtemberg Center for Technology Assessment and the Berkeley Center for Survey Research, the Project tentatively plans to carry out a study of public views on fairness in siting needed hazardous waste facilities in the Black Forest region. A proposal for external funding has been submitted to the U.S. National Science Foundation.
2. Cleaning up and coping with contamination. In collaboration with the Regional Material Balance Approaches to Long-Term Environmental Policy Planning and Radiation Safety of the Biosphere Projects, a proposal is being prepared for external funding to study the attitudes in the Black Triangle region of Poland concerning the public's perceived fairness of the policy options for coping with contaminated soils.
3. Siting hazardous facilities. As a continuation of the Project's extensive case study work on siting hazardous facilities, a book on "Fairness and Trust in Siting Hazardous Facilities: Lessons from Europe, Asia and North America'' (tentative title) is being prepared. This is in collaboration with the Wharton School of Business and the Taiwan University. A special session of the annual meeting of the European Society for Risk Assessment (August, 1996) is being organized to present the collection case studies.
4. Transboundary environmental risk management. In collaboration with the Swedish Council for Planning and Coordination of Research, a workshop on ``Transboundary Environmental Risk Management in an Eastern European Context'', was held in Stockholm, August, 1995. Selected papers from this meeting, including issues of fair allocation of transboundary risk burdens, are being prepared for an IIASA special edition of "Risk Analysis''. Based on the success of this workshop, a follow-up meeting is planned to take place in Eastern Europe in 1996.
5. Reforming social security systems. Perhaps the most important risk problem for many individuals is that of their social security. In collaboration with the Population, Development and Environment Project, a proposal is being prepared to examine public views on the fairness of social security reform options in selected countries. The Project is also part of a proposal investigating the phenomenal rise in accidental and health risks in the former socialist countries.
6. Transboundary risk management. As an extension of the Project's work especially the past work on the Danube river, a proposal is being prepared for the European Union on Transboundary Environmental Risk Management in Europe, with a particular focus on building environmental regimes in preparation for EU membership of Central European countries. This proposal is in collaboration with the Swedish Institute of International Affairs and the University of Surrey.
7. Finally, the project is also addressing issues of efficiency and fairness at the global level. A workshop "Risk and Climate Change: The Cataclysmic and Inequitable'' is planned for summer 1996. This meeting is in collaboration with Resources for the Future, Washington D.C. and the University of Maryland, School of Public Policy.

Expected Results and Applications

The first aim of the project is to publish in reputable, international journals that reach a large audience of scientists and policy-makers. The Project has a history of extensive publications, which will continue in 1996. In addition to individual publications, as mentioned above, two special editions of journals are being prepared. The results are also presented at major international conferences.

Since the project is small, a second (competing) aim is to raise external funds. Specifically, the project has submitted or is planning to submit several research proposals.

Personnel and Collaboration

The project has two principal investigators: Iouri Ermoliev, who has a background in applied mathematics and Joanne Linnerooth-Bayer, who has a background in economics and social policy sciences.

Close external IIASA collaborators: Paul Brunner, Technical University, of Vienna, Austria; Benjamin Davy, Technical University of Vienna, Austria; Karl Dake, University of California at Berkeley, USA; Bruno Frey and Felix Oberholzer-Gee, Institute for Empirical Economic Research, University of Zurich, Switzerland; Alexei Gaivoronski, Milano Research Institute, Italy; Yu-Chi Ho, Harvard University, USA; Igor Kovalenko, University of North London, UK and the Institute of Cybernetics, Kiev, Ukraine; Howard Kunreuther, Kevin Fitzgerald, University of Pennsylvania, The Wharton School of Business, Philadelphia, USA; Ragnar Löstedt, University of Surrey, Centre for Environmental Strategy, Guildford, UK; Kurt Marti, Federal Armed Forces University, Munich, Germany; Douglas MacLean, University of Maryland, USA; Vladimir Norkin, The Institute of Cybernetics, Kiev, Ukraine; Andreas Nentjes, University of Groningen, the Netherlands; Gerrit J. van Oortmarssen, Erasmus University, the Netherlands; Christopher Prinz, European Centre for Social Welfare Policy and Research, Vienna, Austria; Thomas C. Schelling, IIASA Institute Scholar; Gunnar Sjöstedt, Swedish Institute of International Affairs, Stockholm, Sweden; Ortwin Renn, Center of Technology Assessment, Stuttgart, Germany; Stephen Robinson, University of Wisconsin-Madison, USA; Michael Thompson, The Musgrave Institute, London, UK; Anna Vari, State University of New York, Albany, USA and Hungarian Academy of Sciences, Budapest, Hungary; Roger Wets, University of California at Davis, USA; and Peyton Young, The Brookings Institution and the John Hopkins University, Baltimore, USA.