Economics Managers Assignment Help

Economics Managers Assignment Help

Economics Managers Assignment Help Present article shows the dilemma for decision makers by adopting precautionary principle for the decision making process. It is expected that application of precautionary principle has great impact on the decision makers and policies which are framed by the decision makers as well. Some of the possible areas wherein precautionary principle can have its great impact by affecting the decision makers include new drug therapies, climate changes, genetically modified food and nuclear power etc. Precautionary principle can be interpreted as principles putting safety ahead better from sorry situation. Precautionary principles are expected to come in action whenever any activity has Economics Managers Assignment Helpconcern for the threat of human health or to the environment (Sunstein, 2005).

Application of precautionary principle in various situations may lead to the dramatic changes in decision making process and hence it is important for the decision makers & other stakeholders of this principle that benefits and cost involved in precautionary principle should be evaluated so as to make difficult decisions. A major issue which is unanswered from Precautionary principle is level of safety which needs to be ensured and risk which are arising due to inaction of a particular action. In present age scenario it is possible that one action may lead to the risk in another area.

Precautionary policies also posses risk by contradicting the core concept behind the principle of precautionary principle. Example can be taken for several areas such as genetic food, nuclear power and environmental issue etc.  Genetic foods are considered an important innovation so as to enhance the nutritional value of the food while people adopting precautionary policies would be against genetic food by stating that this may create significant harm to human health (Stewart, 2002). Similarly usage of nuclear power in countries like China has shown several benefits while people following precautionary principle states that usage of nuclear power may create health issues among people living in nearby regions as radiation emitted from nuclear power are harmful for human health. While usage of fossil fuel in place of nuclear power may create bigger risk for the human life by enhancing green house impact. While nuclear power at other side may be effective in decreasing environmental problems. Another example can be taken for the social issue for the regulation of arsenic in the drinking water with lower quantity and higher quantity may enhance the cost very significantly (Wildavsky, 1988).

While considering the risk level for precautionary principle it is important to consider all risk which are highlighted in regulations or not. For example a untested drug should be avoided as precautionary principle but it would also put risk of the diseases which could have been diagnosed by the usage of drugs which have been banned by government. Hence looking at the regulations which have been developed for the precautionary principle it can be said that regulations give rise to new kind of risk instead of reducing the level of risk. We can give privilege to the existing risk over new risk according to precautionary principle (Arrow, 1996). This give risk to new debate that in case such risk should not have been adopted in past then in present age we would have been deprived of some of the major innovations such as internet technology, electricity, automobiles and countless other technologies.

A major issue created by precautionary principle is defining the level of regulation and weighing of the variables which are at stake for the stakeholders. Hence it would be advisable to follow cost benefit approach where in instead of just considering cost associated with such innovation benefits should be considered to balance the two factors. It is not possible to create entirely risk free environment for the society e.g. banning the air travel so as to avoid any possibility of terrorism which is not possible due to the reason that benefits of air travel would outweigh the cost associated with the air travel. Hence some degree of risk needs to be adopted against the precautionary principle looking at the potential benefits which would be gained through adoption of that risk (Wildavsky, 1980).

Precautionary principle

Precautionary principle can be defined as the approach which states that in case of lack of evidence or proof for harmfulness of a particular policy to human being or environmental elements it is advisable to avoid such policy. This principle is used as the explanatory tool for the discrete decision making process used by the decision maker authorities in situation where action has been avoided so as to provide safety for the environmental issues or to human health (Wiener, 2002). There are two major thoughts working in the area of precautionary principle which are risk & cost tradeoff made and avoiding potential harm to the human life and society at large.

There are four major applications which can be interpreted from the precautionary principle and can be given as under:

  • Activities containing significant level of harm to human life should be prohibited until the proponent of activity highlight that there is no such harm to human life and environment as well
  • Activity reflecting level of harm to environment and human life should be subjected to the usage of best possible technology in order to minimize level of risk until it has been shows that proponent of activity do not have any significant harm to human life (Zhong, 2002)
  • Regulatory controls should be such that they do not foster any kind of adverse impact and contains margin for safety
  • Regulation of activities should not be precluded in lack of scientific uncertainties until it has been established that such action or policy may have considerable harm to the human life

Evaluation of present made by author in present paper seems apt looking into the justification given for the each contradictory point made against the precautionary principle. It has been rightly mentioned that it’s not possible to create a risk free environment wherein human life can be secured with no risk (Arrow and Fisher, 1974). Every environment, action or policy would contain certain level of risk and its duty of the decision makers to understand potential risks which are attached with a particular process or action.  Identifying risk element would require developing a balanced approach for considering risk and benefits sought through particular process. Approach adopted by author in present article seems very practical wherein every counter action for the particular action also posses risk. Further argument made by author in relation with consideration of all risk and aspect of a particular process before making decision or developing regulations in context to a policy. Example highlighted by author in order to explain risk areas contained into different applications for precautionary principle such as environment, genetically modified food and nuclear power gives strong explanation for the contradictory view offered by author.

Another factor which makes author justification strong against the precautionary principle was the availability of strong viewpoint that precautionary principle would create hindrance in the innovation of different technologies and equipments. Similarly, adopting precautionary principle does not resolve any problem but also creates several other risk areas for the particular process and does not provide any direction to be followed for the decision makers (European Commission, 2000). There are several questions for which there is no response from precautionary principle such as level of testing required in case of medical drug or level of safety which is required by a human being.

Analysis of precautionary principle

Precautionary principle is applicable into wide number of areas such as energy, environment, pharmaceutical and genetic food production etc. Impacts of precautionary principle in these areas can be made by considering the changes which are brought by the precautionary principle in terms of decision making parameters. In present context impact of precautionary principle would be assessed for the energy and pharmaceutical industry. Looking at the energy segment precautionary principle would state to avoid any process of action to be followed which has significant harmful impact over the human health or environmental factor (Graham and Hsia, 2002). Example of nuclear energy can be taken for the present context wherein it is advocated by the followers of precautionary principle that it may have significant impact on human health as radiations emitted by nuclear power plants is very harmful for the human health. But looking at the other view using nuclear energy has two major benefits over other sources of energy which are lesser environmental pollution through nuclear power in terms of no harm to the ozone layer and harmful impacts of the fossil fuel. Fossil fuel would be used as the alternative to the nuclear energy which is even more risky to the human health as it leads to the air pollution and green house impact.

Similarly impact of precautionary principle can be observed in pharmaceutical industry where in with the implementation of precautionary principle it has been stated that actions and processes impact health of human being should be avoided. Taking example of ban made by government over so many drugs in lack of the proper prelaunch testing done by these pharmaceutical companies. There is one major question which is not answered by the precautionary approach which states that “What level of prelaunch testing is sufficient for the pharmaceutical companies”? Secondly another major issue for this segment is loss of benefit which a patient might have obtained in case the drug should have been launched into market (Graham and Wiener, 1995). Further it is important to note here that the alternative drugs which are used by the patients at present for the same disease might be impacting health for the patient and may be of high cost due to which new drug with lower cost and lessening health impact was discovered. Hence looking into the potential impact on health of human being which was not scientifically developed we lost the benefits which might have been obtained through the innovation of newly proposed drug. Another major issue pertaining to pharmaceutical industry for precautionary approach is the testing of drugs on human being and animals. It has been advocated as a precautionary principle that such testing should be banned looking into health aspect of people for which these drugs are tested. While advocating this view people do not consider the potential benefit which would be obtained in case the successful trial is done for the drugs. Drugs thus tested can help in reducing the cost of health saving drugs and can result into saving life for so many people.

Some of the major limitations of precautionary principle are narrow view (not considering all benefits and risk), considering risk free environment and avoiding processes in lack of scientific proof. In order to avoid issue of narrow view cost and benefit approach should be adopted so that a deep analysis of the situation can be done in order to consider all potential risk and benefits for the particular action or process (Lave, 1981). Similarly it is not practical to consider risk free environment hence some level of risk needs to be accepted looking into the benefits which would be obtained through captioned process or action. It is important that limitations in lack of scientific proof should not go towards avoiding particular action or process. It is important that decision makers should develop precise risk and return matrices in such situations and at the decided level of risk such policies should be allowed provided benefits are visible.

Perfect competition and precautionary principle

Perfect competition is the market situation wherein economical and political powers in the market are divided at least among the three major market players. Perfect competition markets operate under high efficiency and there are no trade barriers in the perfect competition markets. Perfect competition market contains all major players with the similar set of powers and resources without usage of any competitive advantage by particular industry player to exercise their power in order to make benefit from the market.

There is strong relationship between precautionary principle and perfect competition as both hampers development of new innovation in market so as to develop a competitive environment wherein consumers are in the better position without offering any benefit to the particular market player (Peltzman, 1973). With precautionary principle there would be hindrance for the development of new technology hence all market players would be having same set of powers. For example any new technology which is introduced at its early phase would contain some inherent risk in it and without taking that risk it is not possible to take benefits of the newly invented technology. Another example can be taken in form of the pharmaceutical industry where every new innovation would require it testing on the human being and animals. Precautionary principle would avoid any such testing so as to avoid risk to human being lives.

Precautionary principle is considered as the complementary to the perfect competition as with the help of this principle barrier would be created for the innovation and thus no market player would be in position to gain specific competitive advantage. Without competitive advantage with the market player all players would be having same strategic tools to attract the customers. Hence economic and political powers in marketplace would be spread equally among all the major players and especially between the three major market players which are operating in the marketplace without any specific competitive advantage. Precautionary principle provides a base for the perfect competition environment in the marketplace by creating hindrance to new innovations.

Precautionary principle and Post GFC reforms

Statement “The precautionary principle is frequently paralyzing” seems appropriate as the approach adopted in the precautionary principle in itself contradictory to the elements of precautionary principle. It stands as an obstacle to the regulation and non regulation by offering risk of new kind which did not exist, in order to safeguard against the visible risks. Global financial crisis was one of the biggest shocks in terms of economic factor after great depression eight decades ago (Sandin, 2004). Precautionary principle are considered as one the major decision making tool for the difficult decisions but there is no clear pathways shown by the precautionary principle and even higher risk composition is given by precautionary principle. Another issue which is created with precautionary principle is depriving people from the potential benefits of any action or policies which have been avoided by following the precautionary principle.

Economics Managers Assignment Help

Post GFC several international regulatory reforms were carried out in order to strengthen financial systems so that such issues can be avoided in future. Some of the major actionable adopted post GFC from G20 action list includes strengthening the banking system and liquidity requirements so as to make risk management framework strong. Risk posed by SIFI would be addressed and resolution regime would be improved. OTC derivative markets which are major risk enabling factor would be improved so as to regulate amount of risk present in OTC transactions. Accounting standards would be regulated and higher amount of strength would be provided to the accounting standard and policies which are adopted worldwide so that there are no accounting frauds happening in global financial markets. Compensation practice for the support of financial system would be reviewed in order to develop a system which can provide backup for any such financial crisis in future.

The above mentioned global financial reforms adopted in order to tackle future instances not only led to new risk to economy but also deprived various countries from the financial growth which should have been obtained through aggressive policy. For example taking the example of higher capital adequacy reform adopted post GFC, this reform would led to higher capital requirements for the banking system. Capital thus accumulated would be kept idle with the central banks or any other central banking regulating institution, this would led to wastage of resources which could have been used for the growth of financial system and tackling other issues in the country. This may create another risk for the banking industry in terms of lower profitability (Sandin, 1999). Present age banking system is operating on sufficient profitability due to which their survival is determined in the global financial market and by imposing higher capital adequacy requirement for the banks would lead to lower profitability as money would be kept idle without generating any return on the money employed by the banks and other financial resources. Similarly adding higher complexity for the accounting standards in order to regulate the accounting practice worldwide would impose the risk of higher error rate in the accounting practice. Frequent changes in the accounting regulations and complexity would enhance chances of mistake in the accounting practices adopted by various financial and non financial accounting records. Hence this gives rise to another risk of higher rate which may be even harmful as compared to earlier issues which have been observed due to lower accounting standards. Further there would be cost associated with this in terms of monitoring of accounting standards by the central authorities and by deploying higher human resource for adopting accounting practice in the organizational environment.

There is no guarantee that post GFC international reforms would be able to avoid any future global financial crisis as such situations emerge as a result of weakening financial sentiments around the globe (Sunstein, 2002). There can be numerous reasons for the global financial crisis and it is not possible to deal with all such issues by adopting precautionary principle. Further such principle would adversely impact the overall financial market by posing higher risk and creating barrier for the growth of financial market worldwide. Hence it is advisable that before adopting any such principle a proper cost benefit analysis should be done and based on the analysis measures for the adopting of any such policy should be taken.


Arrow, K, (1996), “Is There a Role for Benefit-Cost Analysis in Environmental, Health, and Safety Regulation?” Science, No. 272, pp. 221-222.

Arrow, K. and A. Fisher, (1974), “Environmental Preservation, Uncertainty, and Irreversibility,The Quarterly Journal of Economics, Vol. 88, No. 2, pp. 312-319.

European Commission, (2000), Communication from the Commission on the Precautionary Principle, Brussels: The Commission of the European Communities

Graham, J. and Hsia, S, (2002) “Europe’s Precautionary Principle: Promise and Pitfalls,” J. of Risk Res., Vol. 5, No. 4, p. 380.

Graham, J. and Wiener, J, (1995) Risk vs. Risk: Tradeoffs in Protecting Health and the Environment, Harvard University Press

Lave, L., (1981) “The Strategy of Social Regulation: Decision Frameworks for Policy,” Washington DC: The Brookings Institution

Peltzman, S., (1973) “An Evaluation of Consumer Protection Legislation: The 1962 Drug Amendments,” Journal of Political Economies, Vol. 81, pp. 1049-91. Office of Management and Budget, Report to Congress on the Costs and Benefits of Federal Regulations, available at, p.84.

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Sandin, P., 1999, “Dimensions of the Precautionary Principle,” Human and Ecology Risk Assessment, Vol. 5, pp. 889-907.

Sunstein, C., 2002, “The Arithmetic of Arsenic,” Georgetown L. Rev., Vol. 90, p. 2255.

Sunstein, C., 2005, Laws of Fear: Beyond the Precautionary Principle, Cambridge University Press.

Stewart R., 2002, “Environmental Decision-Making Under Uncertainty,” Res. in Law and Econ., Vol. 71, p. 76.

Wildavsky, A., (1988), Searching for Safety, New Brunswick, New Jersey: Transaction Books.

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Wiener, J., (2002) “Comparing Precaution in the United States and Europe,” J. of Risk Res., Vol. 5, No. 4, pp. 317-349.

Zhong, L., (2002) “Nuclear Energy: China’s Approach Towards Addressing Global Warming,” Geo. Int’l Envtl. L. Rev., Vol. 12, p. 493.

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