Precautionary Principle and the Optimal Timing of Environmental Policy Under Ambiguity

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Abstract

I consider a problem in environmental policy design in which I focus on stock pollutants. In particular, I consider stock pollutants that cause severe damage on the environment and do not depreciate at all once they are released into the atmosphere and the ocean. The purposes of this paper are: (1) to provide an economic foundation for environmental policies based on the precautionary principle and the 1992 Rio Declaration on Environment and Development, and (2) to show that this optimal timing rule has a reservation property. Furthermore, I analyze the effect of an increase in ambiguity on the optimal timing of adopting some environmental policy, and show that an increase in ambiguity decreases the optimal timing of adopting the environmental policy.

Original languageEnglish
Pages (from-to)173-196
Number of pages24
JournalEnvironmental and Resource Economics
Volume47
Issue number2
DOIs
Publication statusPublished - Jan 1 2010

Keywords

  • Ambiguity
  • Environmental policy
  • Knightian uncertainty
  • Non-expected utilities
  • Precautionary principle

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law

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