A Decision Theoretic Model for Standard Setting and Regulation

von Winterfeldt, D. (1978). A Decision Theoretic Model for Standard Setting and Regulation. IIASA Research Memorandum. IIASA, Laxenburg, Austria: RM-78-007

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Abstract

This paper presents a decision theoretic model which was developed to aid regulatory agencies in standard setting and regulation tasks. The one stage three decision maker model encompasses the decision making of a regulator, a developer, and an impactee unit. Each decision unit is assumed to follow a basic decision model, which is a combination of a probability model, a difference value judgment model, and an expected utility model. The developer unit is linked to the regulator unit through possible detections of violations of a regulation and sanctions. The impactee unit is linked to the developer unit through pollution generating events stemming from the developer's actions, and the subsequent damages which may result from pollution.

This basic regulation model is then specified to safety and emission standard setting. Central in these specifications is a signal detection model which characterizes the uncertainty with which the regulator will detect or miss violations of his regulation. A multistage conditional probability model links the developer's actions, pollution generating events, amounts of pollutants, and possible effects on impactees.

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