Operational Safety Economics

Chapter 3Economic Foundations

3.1 Macroeconomics and Microeconomics

In economics, a distinction is made between microeconomics and macroeconomics. Whereas macroeconomics deals with aggregate economic quantities such as national output, unemployment, and inflation issues, microeconomics concerns the behavior of individual economic units, such as consumers, workers, and individual organizations. More explicitly, the field of microeconomics studies and explains the decision-making of these individual economic units from an economic and rational viewpoint. Hence, when investigating operational safety decision-making in an organizational context, microeconomics is the research field of primary interest.

Microeconomics may help us to understand, for example, safety indifference curves, safety utilities, safety investments, safety budgeting, equilibrium safety levels, and the like. It should be mentioned that microeconomics deals with both positive and normative questions. When discussing safety investment decisions, in particular, it is important to differentiate between the two approaches. Positive economics refers to the objective scientific descriptions, explanations, and predictions based on certain facts and to the explanation of how an organization takes decisions. It involves the development of economic theories, models, and facts and it can be regarded as the “science” aspect of economics, which aims to explain, optimize, and predict decisions of individual economic units. ...