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culture and firm risk-taking August 29, 2012

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Roxana Mihet has authored a recent IMF working paper with the title Effects of Culture on Firm Risk-Taking: A Cross-Country and Cross-Industry Analysis. Here’s the abstract:

This paper investigates the effects of national culture on firm risk-taking, using a comprehensive dataset covering 50,000 firms in 400 industries in 51 countries. Risk-taking is found to be higher for domestic firms in countries with low uncertainty aversion, low tolerance for hierarchical relationships, and high individualism. Domestic firms in such countries tend to take substantially more risk in industries which are more informationally opaque (e.g. finance, mining, IT). Risk-taking by foreign firms is best explained by the cultural norms of their country of origin. These cultural norms do not proxy for legal constraints, insurance safety nets, or economic development.

the problem of managing food risks June 4, 2011

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Eating a supposedly healthy diet can be risky. Having to balance the risks of consuming mercury against the health benefits of eating fish can lead in the direction of a vegetarian diet. But vegetables – right now especially salad vegetables – can be dangerous too. And it seems that women are affected by the recent e coli problems more frequently than men. Until the source of the problem is identified the UK’s Food Standards Agency gives some pretty useless advice about salad risk management:

The Agency is reminding consumers of the importance of basic food hygiene practices when preparing food.
It is a good idea to wash fruit and vegetables before you eat them to ensure that they are clean, and to help remove germs that might be on the outside. Peeling or cooking fruit and vegetables can also remove these germs.

fighting compensation culture… again October 15, 2010

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The explanatory notes to the Compensation Bill which became the Compensation Act 2006 (and which instituted the regulation of claims management by the Ministry of Justice) noted:

16.The Better Regulation Task Force (BRTF) report: Better Routes to Redress published in May 2004 found that the “compensation culture” is a myth but that it is a damaging myth that needs to be tackled. The BRTF identified the activities of claims intermediaries as contributing to a ‘have a go culture’ and recommended that claims intermediaries should be subject to statutory regulation, if self-regulation did not work.

David Cameron still seems to believe that the UK has a compensation culture problem and asked Lord Young of Graffham to investigate. Cameron is reported in the announcement of Lord Young’s report: Common Sense, Common Safety as saying:

A damaging compensation culture has arisen, as if people can absolve themselves from any personal responsibility for their own actions, with the spectre of lawyers only too willing to pounce with a claim for damages on the slightest pretext.

Did Cameron actually read the report? The report notes that the UK’s “compensation culture” is more a matter of perception than of reality:

Press articles recounting stories where health and safety rules have been applied in the most absurd manner, or disproportionate compensation claims have been awarded for trivial reasons, are a daily feature of our newspapers… Businesses now operate their health and safety policies in a climate of fear. The advent of ‘no win, no fee’ claims and the all-pervasive advertising by claims management companies have significantly added to the belief that there is a nationwide compensation culture.The ‘no win, no fee’ system gives rise to the perception that there is no financial risk to starting litigation; indeed some individuals are given financial enticements to make claims by claims management companies who are in turn paid ever-increasing fees by solicitors. Ultimately, all these costs are met by insurance companies who then increase premiums. However, any employer not covered by accident insurance faces bankruptcy, which encourages them to follow every recommendation of their health and safety consultant, no matter how absurd.

The Report makes a number of different proposals, including introducing a simple procedure for personal injury claims, replacing the Adventure Activities Licensing Authority with a Code of Practice; changing the risk assessment process, and introducing minimum qualification standards for health and safety consultants. The Report announces:

We should all accept that health and safety in non-hazardous occupations is little more than common sense in action.

And Lord Young wants to change the behaviour of insurance companies:

Insurance companies should cease the current practice that requires businesses operating in low hazard environments to employ health and safety consultants to carry out full health and safety risk assessments.

He also suggests that schools should be able to have a single consent form that would cover the activities a child might be involved in during his/her time at a school. This is an idea Cameron likes, but I’m not sure I would sign such a consent. Who knows when they might decide to go on a dangerous (and seemingly to be unregulated) caving trip? And what about sports injuries (see also here)?

strangely useful parliamentary equipment … April 27, 2010

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risk and liability January 26, 2010

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According to the World Economic Forum’s Risks Interconnection Map, there is a risk that US style liability rules will spread to other parts of the world and this:

reduces personal accountability and loss sharing, and global insurance capacity, undermining investment and growth.

Funny, I thought liability was all about accountability. But the statement refers to “personal” accountability. Perhaps in this context corporations aren’t people.