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HAZARD COMPENSATION AND INCENTIVE SYSTEMS: AN ECONOMIC 156 PERSPECTIVE original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the retained, and some typographic errors may have been accidentally inserted. Please use the print version of this publication as the authoritative version for attribution. were not behaving carelessly because they knew they were protected from losses. Integrating Stakeholders and Stages The different interested parties and the three stages of the siting process can be integrated through a stakeholder-strategy matrix. Table 1 illustrates the use of the matrix for the hazardous waste siting problem and depicts which interested parties are likely to be involved in a strategy associated with a particular stage in the siting process. For example, monetary or in-kind compensation in Stage 1 should involve the host community, other communities, the developer, the waste generator, and the state siting authority. As the matrix shows, the insurance industry will normally be associated only with Stage 3 of the process. The conditions necessary for determining which sites are feasible can be illustrated by constructing a relatively simple decision tree for any given stage under the assumption that there are n potential candidate sites. Figure 2 depicts the branches of the tree for Stage 1 if there are m different events and event j has a probability Pij that outcome Cij will occur. An example of a particular event in Stage 1 is the construction of a new facility that meets all specifications; another event might be the discovery after the facility is completed that it is on an earthquake fault. We will assume that there are no events that will yield any net benefits from the site itself. For site i to be willing to host the facility, some type of compensation or benefit (Bij) must be provided if event j occurs. If a fixed ex ante compensa TABLE 1 Stakeholder-Strategy Matrix for Siting a Hazardous Waste Disposal Facility Stage 1 Stage 2 Stage 3 Locating the Living With Accident Site the Site Stakeholder Monetary or Compensation Environmental Insurance In-Kind for Property Regulation and Ex Post Compensation Value Compensation Decreases Host ⢠⢠⢠⢠community Other ⢠communities Developer ⢠⢠⢠Waste ⢠⢠generator State siting ⢠⢠authority Federal ⢠⢠government agencies (e.g., EPA) Insurance ⢠industry
HAZARD COMPENSATION AND INCENTIVE SYSTEMS: AN ECONOMIC 157 PERSPECTIVE original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the retained, and some typographic errors may have been accidentally inserted. Please use the print version of this publication as the authoritative version for attribution. tion package is given to community i no matter what event occurs, then Bij = B1 for all j. We have adopted this assumption in Figure 2. For Stages 2 and 3, the amount of compensation will depend on specific events. For example, if the developer pays residents for decreases in current property values when they sell their houses, then there will be a probability distribution associated with anticipated changes in market prices of property in the area. Figure 2 Decision tree for Stage 1 of siting process. The decision tree in Figure 2 provides a framework for discussing the issues of risk perception and the elicitation of community preferences. Both of these issues are important in developing a practicable program for compensation and insurance.
