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Mad Cows, Terrorism and Junk Food: Should Public Policy Reflect Subjective or Objective Risks?


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Title: Mad Cows, Terrorism and Junk Food: Should Public Policy Reflect Subjective or Objective Risks?
Authors: Johansson-Stenman, Olof
Issue Date: 2006
University: Göteborg University. School of Business, Economics and Law
Extent: 37 pages
172025 bytes
Publication type: Report
Series/Report no.: Working Papers in Economics, nr 194
Keywords: Subjective risk
risk management
risk regulation
risk perception bias
terrorism
fat taxes
internalities
cost-benefit analysis
corrective taxation
paternalism
Abstract: Empirical evidence suggests that people’s risk-perceptions are often systematically biased. This paper develops a simple framework to analyse public policy when this is the case. Expected utility (well-being) is shown to depend on both objective and subjective risks. The latter are important because of the mental suffering associated with the risk and as a basis for corrective taxation and second-best adjustments. Optimality rules for public provision of riskreducing investments, “internality-co... more
ISSN: 1403-2465
URI: http://hdl.handle.net/2077/2727
Appears in Collections:Working papers

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