Abstract
Early warning and control technologies offer prospective users the possibility of reducing both the magnitude of expected losses (‘self insurance’) and the probability of their occurence (‘self protection’). In their seminal work Ehrich and Becker (1972) demonstrated that under certain conditions an optimal warning and control system should correspond to an interior point of the solution space. This paper demonstrates that there are alternative, plausible conditions for which risk neutral decision makers should choose an extremal solution — no protection at all or maximal feasible protection — and suggests an approximation procedure for the preliminary identification of such cases.
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