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Surreptitious juggling of periods of testing, responsibility and liability in relation to risk

Disastrous Floods as Indicators of Systemic Risk Neglect (Part #8)

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The above argument highlights the importance of timing in relation to risk management:

  • time scale: the longer the time scale, the greater the probability of occurrence of a disastrous outcome from taking a risk (as with the "200-year flood" and the Gaussian copula). Namely the probability of experiencing the disastrous outcome of taking a risk increases by extending the time over which the risk is taken.

  • period of testing: the shorter the period of testing for hazardous outcomes, the lower the probability of detecting any risk from an initiative (such as use of a new product). Namely detection of the risks associated with products whose problematic effects only become apparent over a longer time period can be avoided by conducting tests over a shorter period. Legislative and other provisions, including research methodologies, may well specify periods of testing (to obtain approval to market) that are too short to detect the risk of longer-term hazards.

  • responsibility of decision-maker: the shorter the period of mandate of any government (or other authority), the less likely that it will have to deal with any problematic outcome of a risky initiative for which it is responsible. Short-termism minimizes exposure to risk. Namely there is an increasing probability of reducing responsibility for any disastrous outcome of a risk taken -- by reducing the duration of the period of responsibility. Mandates of governing bodies are typically from 2 to 5 years, ensuring that responsibility for problems arising from their decisions can be avoided if they manifest after that period. Those subsequently elected can attribute responsibility for problems with which they are confronted to their predecessors -- all being typically protected by some form of impunity provisions.

  • period of liability: whereas responsibility for hazardous outcomes may be clear in the shorter term, attribution of responsibility and engaging in legal proceedings may be impossible in the case of longer-term hazards -- in terms of the constraints of any statute of limitations. This is an enactment in a common law legal system that sets forth the maximum time after an event that legal proceedings based on that event may be initiated. In civil law countries, almost all lawsuits must be started within a legally determined period. If they are presented after that time, a provision called prescription applies, which prevents them from filing the case -- as with a statute of limitations. It may be unclear whether the party originally responsible for the product remains responsible for damage beyond that period, if the product continues to be marketed. Of potential relevance is the case for the responsibility of the owner of the associated intellectual property and the period over which that is recognized (From Patent Rights to Patent Responsibilities: Obligations incumbent on owners and licensors of intellectual property, 2007).

  • period of existence: whether undertaken by a well-identified party or not, it may be impossible to associate hazardous outcomes arising over a longer period from the origin of the initiative if such parties have ceased to exist. This is as evident in the case of dynastic families as with corporations whose ownership is transferred or with countries which have acquired independence from former colonial powers.

The interplay of these factors makes it evident that there are "windows of opportunity" through which high-risk initiatives can be taken without those undertaking them being effectively held responsible for disastrous outcomes. Expressed otherwise, it is possible to function within a risk-free "cocoon", (willfully) ignorant of vulnerability to those risks having a significant probability of manifestation on a longer time scale. This is exemplified by many homeowners disastrously affected by the subprime mortgage crisis.

Useful examples are offered by the deliberate or inadvertent introduction of species to ecosystems. Australia, for example has become highly sensitive to the consequences of the "innocent" introduction of the rabbit, the cane toad and red fox. -- subsequently recognized as pests damaging to the environment. These are readily described metaphorically as a "flood". Curiously little has been learnt from such initiatives -- as currently illustrated by some of the geo-engineering proposals in response to global warming (Geo-engineering Oversight Agency for Thermal Stabilization (GOATS), 2008). As noted above, they include stratospheric aerosol geoengineering, namely intentionally flooding the stratosphere with toxic materials in particulate form. As with other forms of flooding, it might well be asked at what point such initiatives are to be recognized as crimes against humanity and acts of terrorism.

It is of course also the case that those knowingly taking such risks may factor into their costs the possibility of any subsequent punitive legal action against them (as is typically the case with the pharmaceutical industry). It might well be argued that government authorities do just that in anticipating the possibility of ensuring that taxpayers bail them out for incompetent decision-making -- as in the case of the financial crisis and with the proposed "flood levy" in the Australian case.

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