Risk pricing practices in finance, insurance and construction

A review of current risk pricing practices in the financial, insurance and construction sectors is conducted through a comprehensive literature review. The purpose was to inform a study on risk and price in the tendering processes of contractors: specifically, how contractors take account of risk when they are calculating their bids for construction work. The reference to mainstream literature was in view of construction management research as a field of application rather than a fundamental academic discipline. Analytical models are used for risk pricing in the financial sector. Certain mathematical laws and principles of insurance are used to price risk in the insurance sector. construction contractors and practitioners are described to traditionally price allowances for project risk using mechanisms such as intuition and experience. Project risk analysis models have proliferated in recent years. However, they are rarely used because of problems practitioners face when confronted with them. A discussion of practices across the three sectors shows that the construction industry does not approach risk according to the sophisticated mechanisms of the two other sectors. This is not a poor situation in itself. However, knowledge transfer from finance and insurance can help construction practitioners. But also, formal risk models for contractors should be informed by the commercial exigencies and unique characteristics of the construction sector

Risk and price in the bidding process of contractors

Formal and analytical risk models prescribe how risk should be incorporated in construction bids. However, the actual process of how contractors and their clients negotiate and agree on price is complex, and not clearly articulated in the literature. Using participant observation, the entire tender process was shadowed in two leading UK construction firms. This was compared to propositions in analytical models and significant differences were found. 670 hours of work observed in both firms revealed three stages of the bidding process. Bidding activities were categorized and their extent estimated as deskwork (32%), calculations (19%), meetings (14%), documents (13%), off-days (11%), conversations (7%), correspondence (3%) and travel (1%). Risk allowances of 1-2% were priced in some bids and three tiers of risk apportionment in bids were identified. However, priced risks may sometimes be excluded from the final bidding price to enhance competitiveness. Thus, although risk apportionment affects a contractor’s pricing strategy, other complex, microeconomic factors also affect price. Instead of pricing in contingencies, risk was priced mostly through contractual rather than price mechanisms, to reflect commercial imperatives. The findings explain why some assumptions underpinning analytical models may not be sustainable in practice and why what actually happens in practice is important for those who seek to model the pricing of construction bids

The principles of integration in urban transport strategies

Integration as a principle in urban transport policy is frequently advocated but rarely defined. We suggest a range of types of integration, and highlight the problems in developing an effective integrated strategy, given the number of variables involved. We argue that integration should be designed to serve agreed objectives of transport policy, rather than being an objective in its own right. We then consider the principles for designing an effective integrated strategy. We define the concept of synergy, which is often advocated as a benefit of integration, and discuss whether it, and other aggregation benefits short of true synergy, are achievable. We then consider the alternative approach of using integration to overcome barriers, an approach which is likely to be in conflict with pursuit of synergy, but more likely to lead to readily implemented strategies. We then review a number of examples where these principles have been applied, and investigate them to assess whether synergy has been demonstrated. Generally we find little evidence of synergy in outcome indicators. We conclude with some more general guidance on approaches to integration

Acceptability factors to transport policy changes

The authors have set out an analytical framework of the acceptability of pricing changes in the transport sector. This framework combines the dimensions of economic efficiency (to manage the demand efficiently), territorial equity (guarantee of accessibility), horizontal equity (user-pays principle), and vertical equity (welfare of most underprivileged). The application of this framework was validated on some urban or suburban road toll case studies. The analysis showed that these dimensions of efficiency and equity generally reinforce themselves in their negative or positive aspects. This analysis also showed that these various dimensions of equity cannot be ignored on pain of failure. Moreover the ways according to which the acceptability of urban road user charging could be improved, if not guaranteed, were identified.Transport ; policy ; road user ; road pricing ; equity ; acceptability ; economic efficiency

Elementary Quantum Mechanical Principles and Social Science: Is There a Connection?

In this paper we provide first for a brief overview of some of the work which has been performed on the interface of quantum mechanics and macroscopic systems (such as economics). We then provide for an overview of how such quantum mechanical concepts can enter financial option pricing theory. We round off the paper with some suggestions on where this area of research can be heading in the near future.superposition; wave function; Black-Scholes option price; information function; probability amplitude; Schrödinger equation; Newton- Bohm trajectory; mean forward (backward) derivative

The human right to medicines

This article considers the component of the right to the highest standard of health that relates to medicines, including essential medicines. Using the right-to-health analytical framework that has been developed in recent years, the first section focuses on the responsibilities of States. The second section provides a brief introduction to the responsibilities of pharmaceutical companies

An Economic Approach to Article 82

This report argues in favour of an economics-based approach to Article 82, in a way similar to the reform of Article 81 and merger control. In particular, we support an effects-based rather than a form-based approach to competition policy. Such an approach focuses on the presence of anti-competitive effects that harm consumers, and is based on the examination of each specific case, based on sound economics and grounded on facts

Environmental targets and shadow prices of bad outputs in organic and conventional farming

The shadow prices can be used as indicators of the costs of environmental regulation imposed as reflected in alternative farming technologies adopted. We illustrate our analytical findings with implications of the Finnish water protection policy measures on conventional and organic livestock farms over the period 1994-2002. Generally, the representative organic farm is found to be more technically efficient relative to its own technology than is the conventional representative farm. However, there is no statistical indication of a difference between these two particular representative farms in valuing the costs of undesirable output (manure) at the margin

Economics of irrigation water management : a literature survey with focus on partial and general equilibrium models

Water policy is an important topic on the agenda of the international community, and efficiency and equity in the allocation of water have emerged as important factors to be considered. Water pricing can be used to mitigate both the quantity and quality dimensions of water scarcity. This paper reviews partial equilibrium models and general equilibrium models that are relevant to irrigation water management issues. The most widely discussed issues in these models are water markets and water pricing. The interrelationships between economic, cultural, social, and political aspects that are related to water policy make it difficult to provide a comprehensive policy analysis. General equilibrium models of irrigation water management allow incorporation of both the irrigation sector and the other sectors in the economy and analysis of policies affecting each of them and the interaction between them. In addition to being able to address sector and household specifications, production factors, time horizon, pricing policies, and institutions such as water markets, general equilibrium models allow the analysis of the impact of water policies on equity and poverty alleviation. The authors conclude that, although there has been a significant increase in efforts to analyzewater related problems, analytical and empirical research in the field is still deficient and more effort is needed to address them.Environmental Economics&Policies,Water Supply and Sanitation Governance and Institutions,Town Water Supply and Sanitation,Water Supply and Systems,Water Conservation