Risk Pricing for Public Policies

The Gollier Commission about risk pricing for public decision-making proposed using “social risk premiums”, favoring projects that provide insurance at the level of global wealth and penalizing those whose fundamentals are correlated with economic activity. The analysis of why implementation of this approach proves difficult is instructive. In particular, the coherence to be ensured between the macroeconomic risk premium and the discount rate appears essential. The scope for social risk pricing goes beyond cost-benefit analysis of public investments and environmental policies. We also need such references for the evaluation of all security or safety regulations; or to guide the State-shareholder for choosing the appropriate weighted average cost of capital of its operators; and sectoral regulators for establishing access fees. However, corresponding policies generally take place in second-best contexts, for which we must further integrate the links between risk assessment and risk management.