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Should we beware of the Precautionary Principle?

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  • Christian Gollier

Abstract

How should society deal with risks when there is scientific uncertainty about the size of these risks? There has been much recent discussion of the Precautionary Principle, which states that lack of full scientific knowledge should not be used as a reason to postpone cost-effective preventive measures. We show in this paper that the Precautionary Principle contradicts one important intuition about the right way to act in the face of risk, namely the principle of 'looking before you leap'. When we expect to learn more about the future, the effectiveness of our preventive measures will be greater if we learn before we act. However, a number of other ways of taking uncertainty into account are consistent with a reasonable interpretation of the Precautionary Principle. First, postponing preventive measures may increase our vulnerability to damage, which induces a precautionary motive for risk-prevention, similar to the precautionary savings motive. Secondly, stronger preventive actions often yield more flexibility for the future, so that acting early has an option value. Thirdly, when better information comes from a process of learning-by-doing, the risk associated with early events is amplified by the information they yield about the future. This plays a role analogous to that of an increase in risk aversion, making us more cautious. Fourthly, because imperfect knowledge of the risk makes it difficult to insure, the social cost of risk should include a risk premium. Finally, uncertainty about the economic environment enjoyed by future generations should be taken into account. This raises the benefit of acting early to prevent long-term risks. Copyright CEPR, CES, MSH, 2001.

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Bibliographic Info

Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 16 (2001)
Issue (Month): 33 (October)
Pages: 301-328

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Handle: RePEc:bla:ecpoli:v:16:y:2001:i:33:p:301-328

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Cited by:
  1. GianCarlo Moschini, 2008. "Biotechnology and the Development of Food Markets: Retrospect and Prospects," Center for Agricultural and Rural Development (CARD) Publications 08-wp477, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  2. Jeffrey A. Frankel, 2003. "The Environment and Globalization," NBER Working Papers 10090, National Bureau of Economic Research, Inc.
  3. Summers, Lawrence & Zeckhauser, Richard, 2008. "Policymaking for Posterity," Working Paper Series rwp08-040, Harvard University, John F. Kennedy School of Government.
  4. Christian Gollier, 2011. "Portfolio Choices and Asset Prices: The Comparative Statics of Ambiguity Aversion," Review of Economic Studies, Oxford University Press, vol. 78(4), pages 1329-1344.
  5. Pauline Barrieu & Bernard Sinclair-Desgagné, 2003. "The Paradox of Precaution," CIRANO Working Papers 2003s-63, CIRANO.
  6. Sheldon, Ian M. & Josling, Timothy E., 2002. "Biotechnology Regulations And The Wto," Working Papers 14594, International Agricultural Trade Research Consortium.
  7. repec:hal:cesptp:halshs-00150931 is not listed on IDEAS
  8. Gollier, Christian, 2002. "Optimal Prevention of Unknown Risks: A Dynamic Approach with Learning," IDEI Working Papers 139, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Felix R. FitzRoy & Ian Smith, 2002. "Welfare, Growth and Environment: A Sceptical Review of The Skeptical Environmentalist(Bjørn Lomborg, Cambridge University Press, 2001)," Discussion Paper Series, Department of Economics 200204, Department of Economics, University of St. Andrews.
  10. Laure Cabantous & Denis Hilton, 2006. "De l'aversion à l'ambiguïté aux attitudes face à l'ambiguïté. Les apports d'une perspective psychologique en économie," Revue économique, Presses de Sciences-Po, vol. 57(2), pages 259-280.
  11. Harrell Chesson & W. Viscusi, 2003. "Commonalities in Time and Ambiguity Aversion for Long-Term Risks ," Theory and Decision, Springer, vol. 54(1), pages 57-71, February.
  12. repec:hal:journl:halshs-00150931 is not listed on IDEAS
  13. Venturini, Luciano, 2003. "The Food System In Transition: An E.U. Perspective," Working Papers 14362, University of Minnesota, Center for International Food and Agricultural Policy.

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