Skip to main content Accessibility help
×
Hostname: page-component-7c8c6479df-ph5wq Total loading time: 0 Render date: 2024-03-28T16:10:06.288Z Has data issue: false hasContentIssue false

8 - Interdependencies within an organization

Published online by Cambridge University Press:  22 September 2009

Howard Kunreuther
Affiliation:
Cecilia Yen Koo Professor of Decision Sciences University of Pennsylvania
Geoffrey Heal
Affiliation:
Garrett Professor of Public Policy Columbia University
Bridget Hutter
Affiliation:
London School of Economics and Political Science
Michael Power
Affiliation:
London School of Economics and Political Science
Get access

Summary

The World Trade Center terrorist attacks of September 11 raise a set of challenges that organizations face in dealing with low-probability events that have catastrophic consequences. More specifically, there are certain bad events that can occur only once. Death is the clearest example: an individual's death is irreversible and unrepeatable. With respect to firm behaviour, bankruptcy is the obvious analogue. This chapter explores the impact that the possibility of an extreme event, such as bankruptcy, has on the propensity of different parts of an organization to take risks.

A key point to emphasize at the outset is that the economic incentive for any division in an organization to invest in risk-reduction measures depends on how it expects the other divisions to behave in this respect. Consider Division 1. If it thinks that the other divisions will not invest in protection, this reduces Division 1's incentive to do so. However, should Division 1 believe that the others are taking appropriate steps to mitigate their risks, it may be best for Division 1 to do so as well. In other words there may be situations where no one invests in protection, even though all divisions would be better off if they had incurred this cost.

Type
Chapter
Information
Publisher: Cambridge University Press
Print publication year: 2005

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Save book to Kindle

To save this book to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×