capturing or illustrating the highly unlikely in a regulatory context - sbca presentation 17 march...
TRANSCRIPT
CAPTURING OR ILLUSTRATING
Erik GomezDr. Ali Gungor
THE HIGHLY UNLIKELY IN A REGULATORY CONTEXTIntended to obtain socially optimal outcomes, regulations that have the lofty goal of reducing or eliminating perilous risks (i.e., terrorist attacks) are disadvantaged when using standard predictive modeling. Why? Because by their definition, the highly unlikely is not probability-based and therefore unpredictable. This presentation highlights this concern and presents a framework for coping with what is commonly referred to as “Black Swan” events.
SOCIETY FORBENEFIT-COST ANALYSIS
17th March 2016
Presented at: 8th Annual Conference
Capturing or Illustrating the Highly Unlikely in a Regulatory Context 2
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Introduction
Capturing or Illustrating the Highly Unlikely in a Regulatory Context 3
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IntroductionHow did you get to here today?
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IntroductionHow did you get to here today?
Drive
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IntroductionHow did you get to here today?
Walk Drive Public Transit
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IntroductionHow did you get to here today?
Walk Drive Public Transit
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SOCIETY FORBENEFIT-COST ANALYSIS
IntroductionHow did you get to here today?
Walk Drive Public Transit
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PurposeAs analysts, how best can we capturethe helicopter commuter?
OutlineDiscuss a Rulemaking Project
Share Status Quo of Benefit Estimation
Present a Framework for Coping with Unpredictable Events
Deliberate on the Validity of the Framework
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Rulemaking Project: Dynamic Positioning
Background InformationDepartment of Homeland Security, U.S. Coast GuardDocket No. USCG-2014-0063 | RIN 1625-AC16Requirement for MODUs and Other Vessels Conducting Outer Continental Shelf Activities with Dynamic Positioning Systems
Summary of the RuleProposes to establish a minimum design, operation, training and manning standards for mobile offshore drilling units and other vessels using dynamic positioning systems to engage in Outer Continental Shelf activities
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Rulemaking Project: Dynamic Positioning
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Rulemaking Project: Dynamic Positioning
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Benefit Estimation“Best Available Science”
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Benefit EstimationPragmatic Implementation
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What Makes for a “Black Swan” Event?
Rarity
Extreme Impact
Retrospective predictability
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How To Regulate for the “Black Swan” Events?
Need for a Reevaluation“The cumulative increase in expenditures on U.S. domestic homeland security over the decade since 9/11 exceeds one trillion dollars. It is clearly time to examine these massive expenditures applying risk assessment and cost-benefit approaches that have been standard for decades.”
John Mueller and Mark G. Stewart (2011)Balancing the Risks, Benefits, and Costs of Homeland Security
Be Prepared“If the unexpected does happen, you should have well-organized processes to deal with it. These could include being able to mobilise a crisis response team, set up emergency board and risk committee meetings, and get quick access to up-to-date management information.”
Iain Coke (2015)Head, Financial Services Faculty at ICAEW
Fast Paced World“Life moves more quickly now than it did then – so the transmission mechanism between events is shorter and faster. There is less chance to mitigate them before they become bigger.”
Steven Hall (2015)Partner, Risk Consulting at KPMG
Lack of Answers“… [many] have weighed in with insightful analyses, but regulators and industry officials seeking practical guidance for the mitigation of unforeseeable or seen-but-highly-unlikely risks will find little help in the academic literature.”
Adam J. White (2011)The Federalist Society fro Law and Public Policy Studies
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Revisit the Purpose of Regulation
The driving force behind regulating for a “Black Swan” event may not necessarily be to avoid it but to enact rules that better cope with its existence
Social regulation refers to the broad category of rules governing how any business or individual carries out its activities, with a view to correcting one or more market failures
Library of Economics and Liberty
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Proposed C.O.P.E. Framework
An Effective “Black Swan” Regulation can:
COPE
apacity to Act and React Quickly
pen and Transparent Communication
stablishes a Response & Solution Team
sychology of Shock is Considered
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Validity of the Black Swan Paradigm in a Regulatory Context
Is this Framework Beneficial to the Pragmatic Evaluation of Highly Unlikely Events?
Next StepsFurther Refine the Framework through Elicited FeedbackImplement the Framework in Future Rules
THANK YOUSEND YOUR FEEDBACK
Erik GomezSenior AssociateKPMG LLC Economic & Valuation Services1676 International DriveMcLean, VA 22102Office: [email protected]
SOCIETY FORBENEFIT-COST ANALYSIS
Dr. Ali GungorSenior EconomistU.S. Coast GuardStandards Evaluation & Analysis2703 Martin Luther King Jr. AveWashington, D.C. 20593Office: [email protected]
17th March 2016