Social vulnerability, insurance and risk diversification in Latin America and the Caribbean

Includes bibliography

A comparison of deterministic, reliability-based and risk-based structural optimization under uncertainty

In this paper, the effects of uncertainty and expected costs of failure on optimum structural design are investigated, by comparing three distinct formulations of structural optimization problems. Deterministic Design Optimization (DDO) allows one the find the shape or configuration of a structure that is optimum in terms of mechanics, but the formulation grossly neglects parameter uncertainty and its effects on structural safety. Reliability-based Design Optimization (RBDO) has emerged as an alternative to properly model the safety-under-uncertainty part of the problem. With RBDO, one can ensure that a minimum (and measurable) level of safety is achieved by the optimum structure. However, results are dependent on the failure probabilities used as constraints in the analysis. Risk optimization (RO) increases the scope of the problem by addressing the compromising goals of economy and safety. This is accomplished by quantifying the monetary consequences of failure, as well as the costs associated with construction, operation and maintenance. RO yields the optimum topology and the optimum point of balance between economy and safety. Results are compared for some example problems. The broader RO solution is found first, and optimum results are used as constraints in DDO and RBDO. Results show that even when optimum safety coefficients are used as constraints in DDO, the formulation leads to configurations which respect these design constraints, reduce manufacturing costs but increase total expected costs (including expected costs of failure). When (optimum) system failure probability is used as a constraint in RBDO, this solution also reduces manufacturing costs but by increasing total expected costs. This happens when the costs associated with different failure modes are distinct. Hence, a general equivalence between the formulations cannot be established. Optimum structural design considering expected costs of failure cannot be controlled solely by safety factors nor by failure probability constraints, but will depend on actual structural configuration. (c) 2011 Elsevier Ltd. All rights reserved.

Vulnerability to risk among small farmers in Tajikistan: results of a 2011 survey

Tajikistan is judged to be highly vulnerable to risk, including food insecurity risks and climate change risks. By some vulnerability measures it is the most vulnerable among all 28 countries in the World Bank’s Europe and Central Asia Region – ECA (World Bank 2009). The rural population, with its relatively high incidence of poverty, is particularly vulnerable. The Pilot Program for Climate Resilience (PPCR) in Tajikistan (2011) provided an opportunity to conduct a farm-level survey with the objective of assessing various dimensions of rural population’s vulnerability to risk and their perception of constraints to farming operations and livelihoods. The survey should be accordingly referred to as the 2011 PPCR survey. The rural population in Tajikistan is highly agrarian, with about 50% of family income deriving from agriculture (see Figure 4.1; also LSMS 2007 – own calculations). Tajikistan’s agriculture basically consists of two groups of producers: small household plots – the successors of Soviet “private agriculture” – and dehkan (or “peasant”) farms – new family farming structures that began to be created under relevant legislation passed after 1992 (Lerman and Sedik, 2008). The household plots manage 20% of arable land and produce 65% of gross agricultural output (GAO). Dehkan farms manage 65% of arable land and produce close to 30% of GAO. The remaining 15% of arable land is held in agricultural enterprises – the rapidly shrinking sector of corporate farms that succeeded the Soviet kolkhozes and sovkhozes and today produces less than 10% of GAO (TajStat 2011) The survey conducted in May 2011 focused on dehkan farms, as budgetary constraints precluded the inclusion of household plots. A total of 142 dehkan farms were surveyed in face-to-face interviews. They were sampled from 17 districts across all four regions – Sughd, Khatlon, RRP, and GBAO. The districts were selected so as to represent different agro-climatic zones, different vulnerability zones (based on the World Bank (2011) vulnerability assessment), and different food-insecurity zones (based on WFP/IPC assessments). Within each district, 3-4 jamoats were chosen at random and 2-3 farms were selected in each jamoat from lists provided by jamoat administration so as to maximize the variability by farm characteristics. The sample design by region/district is presented in Table A, which also shows the agro-climatic zone and the food security phase for each district. The sample districts are superimposed on a map of food security phases based on IPC April 2011.

Sports after Busy Work: Work-Related Cognitive Failure Corresponds to Risk Bearing Behaviors and Athletic Injury

Although employees are encouraged to take exercise after work to keep physically fit, they should not suffer injury. Some sports injuries that occur after work appear to be work-related and preventable. This study investigated whether cognitive failure mediates the influence of mental work demands and conscientiousness on risk-taking and risky and unaware behaviour during after-work sports activities. Participants were 129 employees (36% female) who regularly took part in team sports after work. A structural equation model showed that work-related cognitive failure significantly mediated the influence of mental work demands on risky behaviour during sports (p < .05) and also mediated the directional link between conscientiousness and risky behaviour during sports (p < .05). A path from risky behaviour during sports to sports injuries in the last four weeks was also significant (p < .05). Performance constraints, time pressure, and task uncertainty are likely to increase cognitive load and thereby boost cognitive failures both during work and sports activities after work. Some sports injuries after work could be prevented by addressing the issue of work redesign.

Asset Pricing with Heterogeneous Agents, Incomplete Markets and Trading Constraints

The consumption capital asset pricing model is the standard economic model used to capture stock market behavior. However, empirical tests have pointed out to its inability to account quantitatively for the high average rate of return and volatility of stocks over time for plausible parameter values. Recent research has suggested that the consumption of stockholders is more strongly correlated with the performance of the stock market than the consumption of non-stockholders. We model two types of agents, non-stockholders with standard preferences and stock holders with preferences that incorporate elements of the prospect theory developed by Kahneman and Tversky (1979). In addition to consumption, stockholders consider fluctuations in their financial wealth explicitly when making decisions. Data from the Panel Study of Income Dynamics are used to calibrate the labor income processes of the two types of agents. Each agent faces idiosyncratic shocks to his labor income as well as aggregate shocks to the per-share dividend but markets are incomplete and agents cannot hedge consumption risks completely. In addition, consumers face both borrowing and short-sale constraints. Our results show that in equilibrium, agents hold different portfolios. Our model is able to generate a time-varying risk premium of about 5.5% while maintaining a low risk free rate, thus suggesting a plausible explanation for the equity premium puzzle reported by Mehra and Prescott (1985).

Framework for risk assessment for maritime transportation systems

Maritime accidents involving ships carrying passengers may pose a high risk with respect to human casualties. For effective risk mitigation, an insight into the process of risk escalation is needed. This requires a proactive approach when it comes to risk modelling for maritime transportation systems. Most of the existing models are based on historical data on maritime accidents, and thus they can be considered reactive instead of proactive. This paper introduces a systematic, transferable and proactive framework estimating the risk for maritime transportation systems, meeting the requirements stemming from the adopted formal definition of risk. The framework focuses on ship-ship collisions in the open sea, with a RoRo/Passenger ship (RoPax) being considered as the struck ship. First, it covers an identification of the events that follow a collision between two ships in the open sea, and, second, it evaluates the probabilities of these events, concluding by determining the severity of a collision. The risk framework is developed with the use of Bayesian Belief Networks and utilizes a set of analytical methods for the estimation of the risk model parameters. The model can be run with the use of GeNIe software package. Finally, a case study is presented, in which the risk framework developed here is applied to a maritime transportation system operating in the Gulf of Finland (GoF). The results obtained are compared to the historical data and available models, in which a RoPax was involved in a collision, and good agreement with the available records is found.

Decision evaluation in complex risk network systems (DecernsSDSS) demo and Black River case study

The selection of metrics for ecosystem restoration programs is critical for improving the quality of monitoring programs and characterizing project success. Moreover it is oftentimes very difficult to balance the importance of multiple ecological, social, and economical metrics. Metric selection process is a complex and must simultaneously take into account monitoring data, environmental models, socio-economic considerations, and stakeholder interests. We propose multicriteria decision analysis (MCDA) methods, broadly defined, for the selection of optimal sets of metrics to enhance evaluation of ecosystem restoration alternatives. Two MCDA methods, a multiattribute utility analysis (MAUT), and a probabilistic multicriteria acceptability analysis (ProMAA), are applied and compared for a hypothetical case study of a river restoration involving multiple stakeholders. Overall, the MCDA results in a systematic, unbiased, and transparent solution, informing restoration alternatives evaluation. The two methods provide comparable results in terms of selected metrics. However, because ProMAA can consider probability distributions for weights and utility values of metrics for each criteria, it is suggested as the best option if data uncertainty is high. Despite the increase in complexity in the metric selection process, MCDA improves upon the current ad-hoc decision practice based on the consultations with stakeholders and experts, and encourages transparent and quantitative aggregation of data and judgement, increasing the transparency of decision making in restoration projects. We believe that MCDA can enhance the overall sustainability of ecosystem by enhancing both ecological and societal needs.

Effects of ocean acidification on visual risk assessment in coral reef fishes

1. With the global increase in CO2 emissions, there is a pressing need for studies aimed at understanding the effects of ocean acidification on marine ecosystems. Several studies have reported that exposure to CO2 impairs chemosensory responses of juvenile coral reef fishes to predators. Moreover, one recent study pointed to impaired responses of reef fish to auditory cues that indicate risky locations. These studies suggest that altered behaviour following exposure to elevated CO2 is caused by a systemic effect at the neural level. 2. The goal of our experiment was to test whether juvenile damselfish Pomacentrus amboinensis exposed to different levels of CO2 would respond differently to a potential threat, the sight of a large novel coral reef fish, a spiny chromis, Acanthochromis polyancanthus, placed in a watertight bag. 3. Juvenile damselfish exposed to 440 (current day control), 550 or 700 µatm CO2 did not differ in their response to the chromis. However, fish exposed to 850 µatm showed reduced antipredator responses; they failed to show the same reduction in foraging, activity and area use in response to the chromis. Moreover, they moved closer to the chromis and lacked any bobbing behaviour typically displayed by juvenile damselfishes in threatening situations. 4. Our results are the first to suggest that response to visual cues of risk may be impaired by CO2 and provide strong evidence that the multi-sensory effects of CO2 may stem from systematic effects at the neural level.

Drought risk assessment as changes in the potential stand yield classes and potential forest production for Sitka spruce, Scots pine, and pedunculate oak over the next 80 years in the Great Britain

Probabilistic climate data have become available for the first time through the UK Climate Projections 2009, so that the risk of tree growth change can be quantified. We assess the drought risk spatially and temporally using drought probabilities and tree species vulnerabilities across Britain. We assessed the drought impact on the potential yield class of three major tree species (Picea sitchensis, Pinus sylvestris, and Quercus robur) which presently cover around 59% (400,700 ha) of state-managed forests, across lowland and upland sites. Here we show that drought impacts result mostly in reduced tree growth over the next 80 years when using b1, a1b and a1fi IPCC emissions scenarios. We found a maximum reduction of 94% but also a maximum increase of 56% in potential stand yield class in the 2080s from the baseline climate (1961-1990). Furthermore, potential production over the national forest estate for all three species in the 2080s may decrease due to drought by 42% in the lowlands and 32% in the uplands in comparison to the baseline climate. Our results reveal that potential tree growth and forest production on the national forest estate in Britain is likely to reduce, and indicate where and when adaptation measures are required. Moreover, this paper demonstrates the value of probabilistic climate projections for an important economic and environmental sector.

Diagnosing Causes of Water Scarcity in Complex Water Resources Systems and Identifying Risk Management Actions

From the water management perspective, water scarcity is an unacceptable risk of facing water shortages to serve water demands in the near future. Water scarcity may be temporary and related to drought conditions or other accidental situation, or may be permanent and due to deeper causes such as excessive demand growth, lack of infrastructure for water storage or transport, or constraints in water management. Diagnosing the causes of water scarcity in complex water resources systems is a precondition to adopt effective drought risk management actions. In this paper we present four indices which have been developed to evaluate water scarcity. We propose a methodology for interpretation of index values that can lead to conclusions about the reliability and vulnerability of systems to water scarcity, as well as to diagnose their possible causes and to propose solutions. The described methodology was applied to the Ebro river basin, identifying existing and expected problems and possible solutions. System diagnostics, based exclusively on the analysis of index values, were compared with the known reality as perceived by system managers, validating the conclusions in all cases

Extending choreography with business contract constraints

Business contracts play a central role in governing commercial interactions between organizations. It is increasingly recognized that business contract conditions need to be closely linked to internal and external business processes, both to reduce the risk of contract violations and to ensure compliance with legislative regimes. Recent research has proposed contract languages allowing the specification of obligations, permissions and prohibitions in business contracts. Business processes that cross-organizational boundaries can be specified in choreography and coordination languages but these do not provide appropriate abstractions for contract constraints. In this paper, we examine the transformation of contract constraints in a business contract language into expressions in a choreography language. An example cross-organizational process is presented, along with a specification of the process in a choreography language and a specification of a set of contract conditions for the process in a business contract language. The contract terms are then translated into choreography expressions that govern the process to ensure compliance. Subsequent discussion explores a number of business and technology issues related to the results. We conclude that cross-organizational business processes can be monitored and enforced according to business contract specifications through the transformation of a contract definition to constraints on process behavior.

Project risk management:a combined analytic hierarchy process and decision tree approach

Time, cost and quality achievements on large-scale construction projects are uncertain because of technological constraints, involvement of many stakeholders, long durations, large capital requirements and improper scope definitions. Projects that are exposed to such an uncertain environment can effectively be managed with the application of risk management throughout the project life cycle. Risk is by nature subjective. However, managing risk subjectively poses the danger of non-achievement of project goals. Moreover, risk analysis of the overall project also poses the danger of developing inappropriate responses. This article demonstrates a quantitative approach to construction risk management through an analytic hierarchy process (AHP) and decision tree analysis. The entire project is classified to form a few work packages. With the involvement of project stakeholders, risky work packages are identified. As all the risk factors are identified, their effects are quantified by determining probability (using AHP) and severity (guess estimate). Various alternative responses are generated, listing the cost implications of mitigating the quantified risks. The expected monetary values are derived for each alternative in a decision tree framework and subsequent probability analysis helps to make the right decision in managing risks. In this article, the entire methodology is explained by using a case application of a cross-country petroleum pipeline project in India. The case study demonstrates the project management effectiveness of using AHP and DTA.

Risk and uncertainty in supply markets and sustainability-related innovation

tentially valuable innovations. In energy policy, much attention is given to analysing and incentivising customer demand, but new technologies also need new supply markets, to provide products and services to build, operate and maintain the innovative technology. This paper addresses the impact of supply constraints on the long-term viability of sustainability related innovations, using the case of energy from waste (EfW). Uncertainties in the pricing and availability of feedstock (i.e. waste) deter potential investors in EfW projects. We draw on prior supply management research to conceptualise the problem, and identify what steps might be taken to address it. Based on this analysis, we propose a research agenda aimed at purchasing and supply scholars and centred on the need to understand better how markets evolve and how stakeholders can (legitimately) influence the evolution of supply markets to support the adoption of sustainability related innovation. Within this broad case, specific themes are recommended for further investigation.

Hedging under liquidity constraints

Although risk management can be justified by financial distress, the theoretical models usually contain hedging instruments free of funding risk. In practice, management of the counterparty risk in derivative transactions is of enhanced importance, consequently not only is trading on exchanges subject to the presence of a margin account, but also in bilateral (OTC) agreements parties will require margins or collateral from their partners in order to hedge the mark-tomarket loss of the transaction. The aim of this paper is to present and compare two models where the financing need of the hedging instrument also appears, influencing the hedging strategy and the optimal hedging ratio. Both models contain the same source of risk and optimisation criterion, but the liquidity risk is modelled in different ways. In the first model, there is no additional financing resource that can be used to finance the margin account in case of a margin call, which entails the risk of liquidation of the hedging position. In the second model, the financing is available but a given credit spread is to be paid for this, so hedging can become costly.

Solvency risk minimizing guaranteed returns in life insurance

Return guarantee constitutes a key ingredient of classical life insurance premium calculation. In the current low interest rate environment insurers face increasingly strong financial incentives to reduce guaranteed returns embedded in life insurance contracts. However, return guarantee lowering efforts are restrained by associated demand effects, since a higher guaranteed return makes the net price of the insurance cover lower. This tradeoff between possibly higher future insurance obligations and the possibility of a larger demand for life insurance products can theoretically also be considered when determining optimal guaranteed returns. In this paper, optimality of return guarantee levels is analyzed from a solvency point of view. Availability and some other properties of optimal solutions for guaranteed returns are explored and compared in a simple model for two measures of solvency risk (company-level and contract-level VaR). The paper concludes that a solvency risk minimizing optimal guaranteed return may theoretically exist, although its practical availability can be impeded by economic and regulatory constraints.