Investing in safety an analytical precautionary principle

PROBLEM: Governments and businesses must respond to increasing safety requirements and balance the associated costs with productivity and competing pressures. METHOD: A real options approach has been introduced for decision making in the private sector; this approach is adapted for regulatory decisions that can involve irreversible and uncertain safety impacts, social costs that differ from private costs, and differences in perception among the stakeholders. RESULT AND IMPACT ON INDUSTRY AND GOVERNMENT: The outcome is an economic decision gage that determines if it is optimal to invest in safety even if the estimated costs significantly exceed the estimated benefits. Applications potentially include safety decisions related to aviation, ground transportation, pipelines, nuclear facilities, natural disaster planning, and terrorism, among others.