ABSTRACT
An important function of government is the management of risk. Although the consideration of risk is often not explicit in the operation of government it is deeply embedded in its institutions, processes, and cultures. A deeper understanding of risk can therefore improve the functions of government. Risk in government can manifest because of physical, economic, or financial stresses, but it is also caused by social processes emerging as political or reputational risk. This social component in particular can lead to high levels of risk amplification. These non-linear dynamics are also caused by the size and complexity of the systems which government manages. Improving the understanding of these systems, and how they might change as a result of shocks, could be a central plank of risk management, but this analytical approach is rarely adopted and is poorly understood. The rise of ‘precaution’ as a principle rather than ‘proportionality’ reduces the capacity of governments to implement adaptive methods of managing risk. Properly quantifying aggregate risk presents the opportunity for government to set risk appetite as a policy option and then to price this in terms of the cost burden of taxation.
