The Price of Safety and Economic Reliability
Charles S. Tapiero
NYU Polytechnic School of Engineering - Department of Finance and Risk Engineering
March 1, 2009
Safety and Reliability, Springer Verlag, Pham Hoang, Editor, Forthcoming
Managing risk and safety consists in defining, measuring, estimating, analyzing, valuing-pricing and integrating all facets of risk and their safety-consequential effects (real or not, external, internally induced or use dependent) into a whole system which can contribute to their design, economy, controls and management. The purpose of this paper is to provide an economic approach to reliability design and safety based on economic considerations regarding a system design, its safety consequences which depend on both system reliability and the proficiency of the user who may be at fault in operating unsafely the system. The paper provides some specific examples that highlight the approach proposed for reliability and safety design and contrasts a number of approaches - risk and finance based, which we consider. Extensions to asymmetric information between the system design and the user, conflicting objectives and controls for safety (which we call counterparty risks), are natural extensions of this paper, and a rich avenue of further research.
Number of Pages in PDF File: 26
Date posted: July 16, 2009 ; Last revised: August 28, 2010