Alternative Methods for Valuing the Benefits of Risk Management Regulations. R. B. Belzer and R. A. Williams, Office of Information and Regulatory Affairs, Office of Management and Budget, NEOB Room 10202, Washington, DC 20503; and U.S. FDA
This paper begins with the assumption that risk assessors will continue to produce "conservative" or "protective" risk estimates that are incompatible with existing economic valuation methods. Under such conditions, what alternative valuation methods are currently available that can be used for valuing risk management regulations? The paper will explore three alternative valuation methods which are routinely used by economists in other areas but have not heretofore been applied to the valuation of risk management regulation: insurance, options, and portfolio analysis. The theoretical and empirical advantages and disadvantages of each will be described, and compared with continued use of the willingness-to-pay model with unavoidably flawed data.