This paper examines the role that insurance, fines and compensation can play as risk management tools in bridging the gap between experts and layper sons. These policy tools are applied to the following two areas: the adoption of protective activities and the siting of hazardous materials disposal facilities. With respect to protective activities, the focus is on the problem of inducing greater voluntary use of manual seat belts and passive restraints. Rather than attempting to alter individual risk perception, we propose a set of economic incentives, such as reduction in insurance premiums or avoidance of a fine, that call attention to the direct benefit of using seat belts and passive restraints. Compensation may be useful in helping to negotiate agreements among differ ent interested parties involved in the siting of hazardous facilities. In this prob lem we explore ways in which some of the benefits to winners can be shared with potential losers, such as the host community. Successful examples of the use of compensation in settling conflicts are presented. In both problem con texts future research needs are identified.
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