Lots to discuss with respect to this article on a group of Italian policy makers and scientists who are on trial for manslaughter charges for failing to adequately inform the public about an earthquake.

What I want to focus on is the issue of incentives. Assume that there was previously no incentive to avoid either false positives or false negatives. How will this trial (regardless of the verdict) change that?

(Answer: it will almost certainly greatly increase false positives.)

What will be the costs and benefits of the new policy? Will the benefits outweigh the costs?

In response to the behavioral changes brought about because of the trial (regardless of the verdict (see “Answer” above)) will there be introduced an incentive to reduce false positives? Where will this drive equilibrium?

Can a “good” (in the sense of optimizing public health and economics) equilibrium be achieved using this method of criminal prosecution? Can any equilibrium be achieved?

For examples that might be easier to relate to: see Hurricane Katrina and then the state and Federal policies of issuing evacuation orders for all hurricanes since Katrina. Do the benefits of evacuation in these subsequent cases equal or outweigh the costs? Alternatively: what is the effective risk premium associated with a certain kind of hurricane/event? (And then: how does that risk premium relate to a company’s internal hurdle rate for evaluating undertaking new projects?)

-JD Cross

 

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