Assessment Of Default Risk Research Articles

The Influence of Differences in Taxable Income and Book Income on the Bond Credit Market

ABSTRACT: We examine the importance of information pertaining to the relationship between taxable income and reported book income to bond rating analysts. Specifically, using a relatively large sample of new bond issues over an extended period of time, we examine information related to deferred taxes as well as the overall tax-to-book position in the assessment of a firm's default risk. Our results are consistent with the existence of a U-shaped relationship, with firms falling in the extreme upper or lower quintiles of their industry-year group receiving lower bond ratings than firms that are nearer to their industry average. Additional analyses suggest this effect is partially diminished for firms identified as highly effective tax planners. Finally, examination of investors' bond yields provides further corroborating evidence with respect to the importance and treatment of the information provided by the firm's overall tax-to-book position.

Morphological alterations of neuronal dendrites in developmental disorder model

Disinfection of surface water for human consumption results in the generation of a complex mixture of chemicals in potable water. Cancer risk assessment methodology assumes additivity of carcinogenic effects in the regulation of mixtures. A rodent model of hereditary renal cancer was used to investigate the carcinogenic response to a mixture of drinking water disinfection by-products (DBPs). Rats carrying a mutation in the Tsc2 tumor suppressor gene (Eker rats) readily develop renal preneoplastic and neoplastic lesions, and are highly susceptible to the effects of renal carcinogens. Male and female Eker rats were exposed via drinking water to individual or a mixture of DBPs for 4 or 10 months. Potassium bromate, 3-chloro-4-(dichloromethyl)-5-hydroxy-2(5H)-furanone (MX), chloroform, and bromodichloromethane were administered at low concentrations of 0.02, 0.005, 0.4 and 0.07 g/l, respectively, and high concentrations of 0.4, 0.07, 1.8 and 0.7 g/l, respectively. Low and high dose mixture solutions were comprised of all four chemicals at either low concentrations or high concentrations, respectively, Following necropsy, each kidney was examined microscopically for preneoplastic lesions (atypical tubules and hyperplasias) and tumors. While some of the mixture responses observed in male rats did fall within the range expected for an additive response, especially at the high dose, predominantly antagonistic effects on renal lesions were observed in response to the low dose mixture in male rats and the high dose mixture in female rats. These data suggest that current default risk assessments assuming additivity may overstate the cancer risk associated with exposure to mixtures of DBPs at low concentrations.

Hormesis and Adaptive Cellular Control Systems

Hormetic dose response occurs for many endpoints associated with exposures of biological organisms to environmental stressors. Cell-based U- or inverted U-shaped responses may derive from common processes involved in activation of adaptive responses required to protect cells from stressful environments. These adaptive pathways extend the region of cellular homeostasis and are protective against ultimate cell, organ, and system toxicity. However, the activation of stress responses carries a significant energetic cost to the cell, leading to alterations of a variety of basal cellular functions in adapted or stressed cells. This tradeoff of resources between the unstressed and adapted states may lead to U-or inverted U-shaped dose response curves for some precursor endpoints. We examine this general hypothesis with chlorine, a prototype oxidative stressor, using a combination of cellular studies with gene expression analysis of response pathways and with computational modeling of activation of control networks. Discrete cellular states are expected as a function of exposure concentration and duration. These cellular states include normal functioning state, adaptive and stressed states at mild to intermediate exposures, and overt toxicity in the presence of an overwhelming concentration of stressors. These transitions can be used to refine default risk assessment practices that do not currently accommodate adaptive responses.

Twenty‐five years of the Taffler z‐score model: Does it really have predictive ability?

Although copious statistical failure prediction models are described in the literature, appropriate tests of whether such methodologies really work in practice are lacking. Validation exercises typically use small samples of non‐failed firms and are not true tests of ex ante predictive ability, the key issue of relevance to model users. This paper provides the operating characteristics of the well‐known Taffler (1983) UK‐based z‐score model for the first time and evaluates its performance over the 25‐year period since it was originally developed. The model is shown to have clear predictive ability over this extended time period and dominates more naïve prediction approaches. This study also illustrates the economic value to a bank of using such methodologies for default risk assessment purposes. Prima facie, such results also demonstrate the predictive ability of the published accounting numbers and associated financial ratios used in the z‐score model calculation.

Aggregate Bankruptcy Rates and the Macroeconomic Environment: Forecasting Systematic Probabilities of Default

Recent empirical research has stressed the importance of economy wide factors in the assessment of default risk, for instance for bond portfolios or portfolios of bank loans. Macroeconomic risk is essentially systematic, as it is difficult to reduce through diversification. Adequate forecasts of the links between macroeconomic factors and default risk, often defined as aggregate credit risk, are therefore important in a large number of risk management applications. This paper considers eleven alternative ways to model the aggregate bankruptcy rate, which is a proxy for aggregate credit risk, on Belgian data for the period 1986-2002. Based on these models, forecasts of the bankruptcy rates for 2003-2006 are made and compared. Four or five-variable Almon lag models result in the best in-sample fit and have the best forecast performance, but much more straightforward alternatives - such as an ARMA model or a one-variable model based on real GDP growth - do almost equally well. Four or five-variable vector error correction models are shown to have good in-sample fit, but very poor out-of-sample forecasting power. Overall we find that the prediction power of simple models is hard to beat.

Creating a Calamity

This essay is part of a symposium where the contributors were asked to identify their favorite commercial calamity. It takes a lot to create a calamity in the commercial arena. Transactional attorneys spend a good deal of their time drafting around the calamities of the past. The Supreme Court's decision in Till v. SCS Credit Corp., 541 U.S. 465 (2004), nevertheless deserves the label. The issue before the Court was straight-forward - how should bankruptcy courts ascertain the appropriate interest rate in a Chapter 13 plan. At one level the case is a calamity in that the Court failed to produce a majority opinion. This issue simply called for a clear rule. While some rules may be better than others, the overriding concern should have been to provide definitive guidance on this oft recurring issue. Here, the Court simply failed. Till bids for calamity status on a second score as well. The opinions show little regard for commercial law. To be sure, Justice Scalia's opinion demonstrates that he at least understood the basic functioning of bankruptcy law and credit practices. The same cannot be said for the remaining opinions. Justice Thomas, accusing all of textual infidelity, authored an opinion which adopted a measure that no court of appeals had endorsed. He argued that, though virtually unnoticed, the Bankruptcy Code mandated that Chapter 13 debtors pay the same rate of interest as the country's most solvent financial institutions. Justice Stevens did little better. His opinion suggests that, for those in Chapter 13 who are seeking to repay their secured debts over time, one should start with the prime rate, and then add 1% to 3%. To be sure, one could articulate a rational for this formula approach that comports with the dynamics of Chapter 13. (We need an easy-to-implement rule; we know that collateral tends to be valued too high, so a rule that sets interest too low may achieve a rough balance.) Unfortunately, this is not the tact that Justice Stevens took. His opinion rests on the assertion that Chapter 13 provides sufficient safeguards so that a modest increase in the prime rate represents the true risk to creditors. This reasoning cannot be squared with what we know about Chapter 13 practice. Moreover, by suggesting that courts can provide a more accurate assessment of default risk than markets, Justice Stevens's opinion creates the possibility for mischief across the Bankruptcy Code.

The Principles of Exporter-Provided Trade Credit Risk Model

The issue of trade credit risk evaluation, from an exporter‘s point of view is analysed in the article, i.e. sources and evaluation possibilities of the risk. Assessing exporter-provided trade credit risk, it is essential for the exporter to identify to which obligor it is rather safe to provide trade credit (negligible or moderate default probability) and which obligor has large probability to default. Credit risk evaluation for exporting companies is more complicated than for firms trading with local partners only, because of the following reasons: firstly, customer is located in another country and therefore it is more complicated to get information about customer‘s reliability. Secondly, there are more factors influencing exporter‘s credit risk as the credit risk is influenced by foreign country‘s political situation, economic stability, etc. Exporter experiences the largest impact and, therefore, losses in the case of customer’s (obligor’s) default, since the creditor (exporter) has a scarce probability to get the money back. Therefore one of the main factors evaluating trade credit risk is obligor’s default risk assessment. As the obligor and creditor are from different countries, the credit risk arises both from the obligor’s intentions and financial situation (internal risk factors) and from obligor’s business environment in his country (external risk factors). Internal factors of obligor default involve activity, competence, reaction to environment changes and moral attitudes towards exporter of company’s management and employees. Dishonest intentions, however, cannot be expressed mathematically, therefore this aspect of the risk is not analysed in the article. External factors of international trade credit risk involve economic and political risk. Complex gathering and analysis of information about foreign country political and economic stability (country risk) is time and money intensive. Country risk can be evaluated by means of sovereign credit ratings provided by world-known credit rating agencies. Obligor’s individual failure probability can be evaluated by the use of various failure risk models. Statistical models based on discriminant analysis and “theoretical” failure risk models are received as classical ones. Alternative models, like expert systems, hazard and neural network models are also employed in credit risk analysis. Trade credit risk evaluation is very important for risk-based export pricing. With risk-based pricing customers (obligors) are charged according to the default risk they present.

Dosimetric Adjustments for Interspecies Extrapolation of Inhaled Poorly Soluble Particles (PSP)

Direct calculation of delivered dose in the species of interest potentially affects the magnitude of an uncertainty factor needed to address extrapolation of laboratory animal data to equivalent human exposure scenarios, thereby improving the accuracy of human health risk estimates. Development of an inhalation reference concentration (RfC) typically involves extrapolation of an effect level observed in a laboratory animal exposure study to a level of exposure in humans that is not expected to result in an appreciable health risk. The default dose metric used for respiratory effects is the average deposited dose normalized by regional surface area. However, the most relevant dose metric is generally one that is most closely associated with the mode of action leading to the response. Critical factors in determining the best dose metric to characterize the dose-response relationship include the following: the nature of the biological response being examined; the magnitude, duration, and frequency of the intended exposure scenario; and the mechanisms by which the toxicants exert their effects.Dosimetry models provide mechanistic descriptions of these critical factors and can compute species-specific dose metrics. In this article, various dose metrics are postulated based on potential modes of action for poorly soluble particles (PSP). Dosimetry models are used to extrapolate the internal dose metric across species and to estimate the human equivalent concentration (HEC). Dosimetry models for the lower respiratory tract (LRT) of humans and rats are used to calculate deposition and retention using the principle of particle mass balance in the lower respiratory tract. Realistic asymmetric lung geometries using detailed morphometric measurements of the tracheobronchial (TB) airways in rats and humans are employed in model calculations. Various dose metrics are considered for the TB and pulmonary (P) regions. Because time is an explicit parameter incorporated in species-specific constants such as mucociliary clearance rates used in the models, the impact of the application of optimal model structures to refine adjustments and assumptions used in default risk assessment approaches to address exposure duration are discussed.HEC estimates were found for particles ranging in sizes that corresponded to existing toxicity studies of PSP (0.3 to 5μm). A dose metric expressed as number of particles per biologically motivated normalization factors (e.g., number of ventilatory units, number of alveoli, and number of macrophages) was lower than the current default of mass normalized to regional surface area for either deposited or retained dose estimates. Retained dose estimates were lower than deposited dose estimates across all particle sizes evaluated. Dose metrics based on the deposited mass per unit area in small and large airways of the TB region indicate HECs of 1 to 5 times those of rats: that is, an equivalent exposure to humans which would achieve the same internal dose as in the rat would be 1 to 5 times greater. HEC estimates in the TB region increase with an increase in particle size for particles from 0.3 to ≤ 2μm, then decrease with an increase in particle size for particles >2 μm in the small airways and >3 μm in the large airways. The HEC decreases with increase in particle size in the P region across all particle sizes studied, and the decrease has a more significant slope for those particles >2 μm due to the limited inhalability of particles this size in rats relative to humans.Our modeling results elucidate a number of important issues to be considered in assessing current default approaches to dosimetry adjustment for inhaled PSP. Simulation of realistic, polydisperse particle distributions for the human exposure scenario results in reduced HEC estimates compared to estimates derived with the experimental particle distribution used in the laboratory animal study. Consideration should be given also to replacing the default dose metric of normalized deposited dose in the P region with normalized retained dose. Chronic effects are more likely due to retained dose and estimates calculated using retained versus deposited mass are shown to be lower across all particle sizes. Because dose metrics based on normalized particle number rather than normalized mass result in lower HEC estimates, use of inhaled mass as the default should also be revisited, if the pathogenesis suggests particle number determines the mode of action. Based on demonstrated age differences, future work should pursue the construction of “lifetime” estimates calculated by sequentially appending simulations for each specific age span.

Analysis of preneoplastic and neoplastic renal lesions in Tsc2 mutant Long–Evans (Eker) rats following exposure to a mixture of drinking water disinfection by-products

Disinfection of surface water for human consumption results in the generation of a complex mixture of chemicals in potable water. Cancer risk assessment methodology assumes additivity of carcinogenic effects in the regulation of mixtures. A rodent model of hereditary renal cancer was used to investigate the carcinogenic response to a mixture of drinking water disinfection by-products (DBPs). Rats carrying a mutation in the Tsc2 tumor suppressor gene (Eker rats) readily develop renal preneoplastic and neoplastic lesions, and are highly susceptible to the effects of renal carcinogens. Male and female Eker rats were exposed via drinking water to individual or a mixture of DBPs for 4 or 10 months. Potassium bromate, 3-chloro-4-(dichloromethyl)-5-hydroxy-2(5H)-furanone (MX), chloroform, and bromodichloromethane were administered at low concentrations of 0.02, 0.005, 0.4 and 0.07 g/l, respectively, and high concentrations of 0.4, 0.07, 1.8 and 0.7 g/l, respectively. Low and high dose mixture solutions were comprised of all four chemicals at either low concentrations or high concentrations, respectively, Following necropsy, each kidney was examined microscopically for preneoplastic lesions (atypical tubules and hyperplasias) and tumors. While some of the mixture responses observed in male rats did fall within the range expected for an additive response, especially at the high dose, predominantly antagonistic effects on renal lesions were observed in response to the low dose mixture in male rats and the high dose mixture in female rats. These data suggest that current default risk assessments assuming additivity may overstate the cancer risk associated with exposure to mixtures of DBPs at low concentrations.

Optimal Insurance With Divergent Beliefs About Insurer Total Default Risk

This paper extends the classic expected utility theory analysis of optimal insurance contracting to the case where the insurer has a positive probability of total default and the buyer and insurer have divergent beliefs about this probability. The optimal marginal indemnity above the deductible is smaller (greater) than one if the buyer's assessment of default risk is more pessimistic (optimistic) than the insurer's. As an application of the model, we consider the market for reinsurance against catastrophic property loss and propose an expected utility theory explanation for the increasing and concave marginal indemnity schedule observed in this market.

The carcinogenic response of Tsc2 mutant Long-Evans (Eker) rats to a mixture of drinking water disinfection by-products was less than additive.

Cancer risk assessment methods for chemical mixtures in drinking water are not well defined. Current default risk assessments for chemical mixtures assume additivity of carcinogenic effects, but this may not represent the actual biological response. A rodent model of hereditary renal cancer (Eker rat) was used to evaluate the carcinogenicity of mixtures of water disinfection by-products (DBPs). Male and female Eker rats were treated with individual DBPs or a mixture of DBPs for 4 or 10 months. Potassium bromate, 3-chloro-4-(dichloromethyl)-5-hydroxy-2(5H)-furanone, chloroform, and bromodichloromethane were administered in drinking water at low concentrations of 0.02, 0.005, 0.4, and 0.07 g/l, respectively, and high concentrations of 0.4, 0.07, 1.8, and 0.7 g/l, respectively. Low and high dose mixture solutions comprised all four chemicals at either the low or the high concentrations, respectively. Body weights, water consumption, and chemical concentrations in the water were measured monthly. All tissues were examined macroscopically for masses and all masses were diagnosed microscopically. Total renal lesions (adenomas and carcinomas) were quantitated microscopically in male and female rats treated for 4 or 10 months. A dose response for renal tumors was present in most treatment groups after 4 or 10 months of treatment. Treatment with the mixture produced on average no more renal, splenic, or uterine tumors than the individual compound with the greatest effect. This study suggests that the default assumption of additivity may overestimate the carcinogenic effect of chemical mixtures in drinking water.

Evaluating the Evidence for Hormesis: A Statistical Perspective

It is possible to account for hormesis under current regulatory guidelines by invoking criteria for departure from default risk assessment procedures. However, past experience suggests that it will be difficult to amass enough evidence for hormesis in an individual case to permit departure from default procedures. Accordingly, hormesis is likely to be important in agency risk assessments only if guidelines are modified to incorporate hormesis as a default assumption. This could be appropriate if hormesis is determined to be a universal or near-universal phenomenon. Although there is ample evidence that hormesis occurs in many specific situations, the overall prevalence of hormesis is very difficult to evaluate based on currently available data. The lack of a valid statistical test for hormesis is a major limitation when evaluating evidence for hormesis. The attempts at estimating the prevalence of hormesis reviewed herein did not adequately control for false positives and/or may have had inadequate power to detect hormesis. Some suggestions are made for constructing a database and analyzing the data therein that would provide more readily interpretable information on the prevalence of hormesis.

Evaluating the Evidence for Hormesis: A Statistical Perspective

It is possible to account for hormesis under current regulatory guidelines by invoking criteria for departure from default risk assessment procedures. However, past experience suggests that it will be difficult to amass enough evidence for hormesis in an individual case to permit departure from default procedures. Accordingly, hormesis is likely to be important in agency risk assessments only if guidelines are modified to incorporate hormesis as a default assumption. This could be appropriate if hormesis is determined to be a universal or near-universal phenomenon. Although there is ample evidence that hormesis occurs in many specific situations, the overall prevalence of hormesis is very difficult to evaluate based on currently available data. The lack of a valid statistical test for hormesis is a major limitation when evaluating evidence for hormesis. The attempts at estimating the prevalence of hormesis reviewed herein did not adequately control for false positives and/or may have had inadequate power to detect hormesis. Some suggestions are made for constructing a database and analyzing the data therein that would provide more readily interpretable information on the prevalence of hormesis.

Effects of di- n-butyl phthalate (DBP) on male reproductive development in the rat: implications for human risk assessment

The National Toxicology Program (NTP) conducted a continuous breeding study in SD rats with di- n-butyl phthalate (DBP) given via the diet at dose levels of up to 650 mg/kg/day. In the parental generation effects on reproduction were modest (small decreases in litter size and pup weight following treatment). However, the F 1 male offspring had marked decreases in fertility (at 650 mg/kg/day), with reduced sperm counts and reproductive tract malformations on reaching adulthood. A no-observed-adverse-effect level (NOAEL) was not established for the study [lowest-observed-adverse-effect level (LOAEL) 66 mg/kg/day]. In a study conducted at CIIT, the majority of these adverse changes could be reproduced over a similar dose range, but with a much shorter dosing regimen covering a critical window of development (gestation days 12–20). A default risk assessment for DBP indicates a reference dose (RfD) of 66 μg/kg/day, based on a LOAEL of 66 mg/kg/day and default factors of 10 for inter-species and inter-individual differences and the lack of a NOAEL. Human exposure data would indicate worst-case scenarios to infants (via formula) in the dose range of the RfD. A default risk assessment appears to be inappropriate since rodents, unlike primates, metabolize phthalate diesters (including DBP) to monoesters extensively in the gut following oral administration. It is believed that the monoester is the active principle for induction of reproductive and developmental toxicity of specific phthalate esters. Thus, if humans produce very low levels of the monoester from an environmental exposure to the diester, the likelihood of any reproductive or developmental toxicity via the oral route appears extremely remote.

High Yields: The Spread on German Interest Rates

This paper is a first attempt at evaluating the determinants of the interest rate differentials on government bonds between high yielders, namely Italy, Spain and Sweden, and Germany. In particular we concentrate on daily frequencies, where the relevance of economic fundamentals is rather limited, and address the question of the relative importance of local and global factors in the determination of such spread. We identify and measure three components of total yield differentials: one due to expectations of exchange rate depreciation – which we call the exchange rate factor – another which reflects the market assessment of default risk and a last one due to the different taxation treatment of long-term yields.

High Yields: The Spread on German Interest Rates

This paper is a first attempt at evaluating the determinants of the total interest rate differentials on government bonds between high yielders, namely Spain, Italy, Sweden, and Germany. In particular, we address the question of the relative importance of local and global factors in the determination of such spreads. We identify and measure two components of total yield differentials: one due to expectations of exchange rate depreciation, which we call the exchange rate factor; and another which reflects the market assessment of default risk. We propose and discuss a measure of the exchange rate factors and of the default risk premium based on interest rates swaps. Overall our investigation provides strong evidence in favour of the existence of a common trend for the Spanish and Italian spreads on Bunds, which is not shared by the Swedish spread. Such trend is driven by international factors and is independent from country-specific shocks. Country-specific shocks are only relevant in explaining short-term cycles around the common stochastic trend.

The causes and prevention of cancer: gaining perspective.

Epidemiological studies have identified several factors that are likely to have a major effect on reducing rates of cancer: reduction of smoking, increased consumption of fruits and vegetables, and control of infections. Other factors include avoidance of intense sun exposure, increased physical activity, and reduced consumption of alcohol and possibly red meat. Risks of many types of cancer can already be reduced, and the potential for further reductions is great. In the United States, cancer death rates for all cancers combined are decreasing, if lung cancer (90% of which is due to smoking), is excluded from the analysis. We review the research on causes of cancer and show why much cancer is preventable. The idea that traces of synthetic chemicals, such as DDT, are major contributors to human cancer is not supported by the evidence, yet public concern and resource allocation for reduction of chemical pollution are very high, in part because standard risk assessment uses linear extrapolation from limited data in high-dose animal cancer tests. These tests are done at the maximum tolerated dose (MTD) and are typically misinterpreted to mean that low doses of synthetic chemicals and industrial pollutants are relevant to human cancer. About half the chemicals tested, whether synthetic or natural, are carcinogenic to rodents at such high doses. Almost all chemicals in the human diet are natural. For example, 99.99% of the pesticides we eat are naturally present in plants to ward off insects and other predators. Half of the natural pesticides that have been tested at the MTD are rodent carcinogens. Cooking food produces large numbers of natural dietary chemicals. Roasted coffee, for example, contains more than 1000 chemicals: of 27 tested, 19 are rodent carcinogens. Increasing evidence supports the idea that the high frequency of positive results in rodent bioassays is due to testing at the MTD, which frequently can cause chronic cell killing and consequent cell replacement-a risk factor for cancer that can be limited to high doses. Because default risk assessments use linear extrapolation, which ignores effects of the high dose itself, low-dose risks are often exaggerated.

The role of regenerative cell proliferation in chloroform-induced cancer

Chloroform produces cancer by a nongenotoxic-cytotoxic mode of action, with no increased cancer risk expected at noncytotoxic doses. The default risk assessment for inhaled chloroform relies on liver tumor incidence from a gavage study with female B6C3F 1 mice and estimates a virtually safe dose (VSD) at an airborne concentration of 0.000008 ppm of chloroform. In contrast, a 1000-fold safety factor applied to the NOAEL for liver cytotoxicity from inhalation studies yields a VSD of 0.01 ppm. This estimate relies on inhalation data and is more consistent with the mode of action of chloroform. Keywords: Chloroform; Nongenotoxic carcinogen; Cell proliferation; Risk assessment

Cancer and non-cancer risk assessment: not so different if you consider mechanisms

Default risk assessment procedures use threshold models for non-carcinogens and a non-threshold model for carcinogens. This a priori distinction reflects the fact that the default procedures do not consider mechanisms of action of specific chemicals. When mechanisms are considered, the distinction is not necessary. Starting with the premise that the goal of risk assessment is to identify actual risk for specific chemicals, three major, generic components of the overall mechanism translating exposure into a response of regulatory interest are identified. These are the specific mechanisms linking (1) exposure with dose to target tissue, (2) target tissue dose with short-term responses such as cytolethality or mutation, and (3) short-term responses with ensuing long-term responses such as cancer or cirrhosis. (Short-term responses may be regulatory end points of interest, or they may be intermediate steps on the way to longer-term sequelae). On-going research on formaldehyde and chloroform is described to illustrate how these three components of the overall mechanism can be examined experimentally and used in specific models. The impact of mechanism-based risk assessment on uncertainty is also considered. Uncertainty is a function of the extent to which the model used for risk assessment misspecifies the actual mechanism of action for the chemical in question. There is a trade-off between (a) mechanism-based models that may reduce uncertainty but are expensive and time-consuming to develop and (b) default models that are not chemical-specific but can be used with minimal data sets. Experience with mechanism-based risk assessment may allow modification of default procedures to minimize this trade-off. A future default procedure for carcinogen risk assessment might allow specification of mode of action. For example, while DNA reactive-carcinogens would still be assumed to have linear low-dose risk, carcinogens acting through purely cytotoxic mechanisms might be assumed to have sharply non-linear or even threshold dose-response curves.

Improving the Regulation of Carcinogens by Expediting Cancer Potency Estimation1

The statutory language of the Safe Drinking Water and Toxic Enforcement Act of 1986 (Proposition 65; California Health and Safety Code 25249.5 et seq.) encourages rapid adoption of "no significant risk levels" (NSRLs), intakes associated with estimated cancer risks of no more than 1 in 100,000. Derivation of an NSRL for a carcinogen listed under Proposition 65 requires the development of a cancer potency value. This paper discusses the methodology for the derivation of cancer potencies using an expedited procedure, and provides potency estimates for a number of agents listed as carcinogens under Proposition 65. To derive expedited potency values, default risk assessment methods are applied to data sets selected from an extensive tabulation of animal cancer bioassays according to criteria used by regulatory agencies. A subset of these expedited values is compared to values previously developed by regulatory agencies using conventional quantitative risk assessment and found to be in good agreement. Specific regulatory activities which could be facilitated by adopting similar expedited procedures are identified.