Risk-based pricing

Until the early 1990s most railroads did not have the information necessary to price in this way. There were a few exceptions. The Union Pacific Railroad had a crude system of risk-based pricing, and CSX Transportation had tried to enumerate the costs of cleanup and liability specific to particular commodities. But most railroads charged a standard price mark-up to reflect total accident costs incurred and the liability claims settled. Such a pricing scheme will result in the transportation of too much extremely-hazardous materials, and too little less-hazardous or non-hazardous materials. 

The authors of the Guidelines for Risk Based Process Safety (KBPS) (CCPS, 2007a) described the need for constant vigilance as the price of maintaining an effective process safety management system. An operator not only must be vigilant (aware of both past and current performance), but must not assume that current performance will be maintained, much less improved, without intentional evaluation of critical parts of systems and their performance. Performance measurement and metrics are a critical part of the RBPS system. 

Fons (1994) studied the term structure of credit risk based on the historical default probabilities, ratings and recovery rates. In fact, he proposes a bond pricing model in which the value depends on the probability of default and average recovery rate. The model presented is based on the following assumptions ... 

Supplier rationalization and supplier relationship management is a key component to supplier development. In this work, the supplier base is stratified using a framework. The framework should tie to the goal and the programs should be built based on the outcome. It should consider the importance of the relationship, the competitive market conditions, commodity market risk and price fluctuations, and the role of the supplier in driving value. 

You need to develop documented procedures that define your subcontractor evaluation and selection process and in certain cases this may result in several closely-related procedures for use when certain conditions apply. Do not try to force every purchase through the same selection process. Having purchasing policies that require three quotations for every purchase regardless of past performance of the current subcontractor is placing price before quality. Provide flexibility so that the policies and procedures complexity match the risks anticipated. Going out to tender for a few standard nuts and bolts would seem unwise. Likewise, placing an order for lm of equipment based solely on the results of a third party ISO 9000 certification would also seem unwise. 

VSL is derived based on the monetary sum people are willing to pay for reducing the risk of fatality. An example of a suitable monetary sum is the price premium for a safe car, which together with risk reduction estimates for the safe car is sufficient to calculate a VSL. The WTP for As (the change in the risk to die) leads to the value of statistical life such as ... 

Currently, physicians and patients determine the demand for pharmaceuticals and employers and insurers assume the risk and cost. As the price of new health care technologies escalates, payers will design and implement strategies to share risk and cost. Defined employer contributions, increased patient cost sharing, and benefit exclusions will be used to help control utilization and cost. In this environment, value-based assessments will be crucial to the adoption of any technological innovation. It is reasonable to expect public and private coverage for new therapies if evidence is provided regarding the costs and consequences of treatment. However, social and ethical dilemmas will certainly arise as therapies whose costs exceed their benefits are debated in the public arena. 

Modern methods of sample handling for determination of surfactants in aqueous samples are practically all based on SPE and modifications thereof. Substantial reductions in analysis time, solvent consumption, sample volume required, and number of off-line steps have thus been achieved. This has not only increased the analysts capacity and analysis price per sample, but also decreased the risk of both analyte loss and contamination during sample handling. Whether or not this has indeed resulted in an increased quality of analytical results still needs to be validated through, e.g. intercalibration exercises. This aspect is discussed in more detail in Chapter 4. 

Some other analysts express the opposite concern, that prices might rise to levels deemed to pose an unacceptable risk to European industry, and that to prevent this risk the system should contain a price cap or safety valve (e.g. Bouttes et al., 2006). Our assessment of phase II, in terms of both supply-demand balance and the economics of competitiveness over the 5-year period, leads us to be sceptical that this is a realistic concern. It is, however, true that a planned response to any such eventuality would be better than a panic-based reaction such as occurred in the California NOx trading system. Should prices rise to levels that were judged to pose a credible threat to competitiveness of a particular sector, and State-aid rules prevented auction revenues being used to assist it (or the country concerned had not conducted any auctions), the most obvious first step would be to relax supplementarity constraints, and possibly expand the scope of emission credits that could qualify for compliance purposes. We do not consider issues of price ceilings or safety valves beyond this. 

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