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Regulatory Actions under Adjustment Costs and the Resolution of Scientific Uncertainty

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  • David A. Hennessy
  • GianCarlo Moschini

Abstract

Food system regulators often decide whether to ban existing practices or approve new technologies without conclusive scientific evidence on possible damage and knowing that resolution is likely in the future. In a model with three decision points and stochastic resolution of uncertainty, we study interactions between expected losses due to regulation and information availability when a regulator is deciding on an early reversible ban and on a later reversible ban. Adjustment costs create inertia concerning intermediate signals such that earlier decisions are not overturned, and also a bias against imposing an early ban. The prospect of more later-stage information can increase or decrease the incentive to ban early, but research decreases the incentive to ban early. Copyright 2006, Oxford University Press.

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  • David A. Hennessy & GianCarlo Moschini, 2006. "Regulatory Actions under Adjustment Costs and the Resolution of Scientific Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 308-323.
    • Handle: RePEc:oup:ajagec:v:88:y:2006:i:2:p:308-323
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2006.00860.x
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    Cited by:

    1. GianCarlo Moschini, 2008. "Biotechnology and the development of food markets: retrospect and prospects," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 35(3), pages 331-355, September.
    2. Dillen, Koen & Tollens, Eric & Wesseler, Justus, 2010. "The Barroso Proposal Of Nationalizing Gmapproval: A Look At Ht Sugar Beets Under Changed European Sugar Policy," 14th ICABR Conference, June 16-18, 2010, Ravello, Italy 188086, International Consortium on Applied Bioeconomy Research (ICABR).
    3. Zhao, Li & Gu, Haiying & Yue, Chengyan & Ahlstrom, David, 2013. "Consumer welfare and GM food labeling: A simulation using an adjusted Kumaraswamy distribution," Food Policy, Elsevier, vol. 42(C), pages 58-70.
    4. Miao, Ruiqing, 2012. "Essays on Investments in New Technologies --- Policy, Information, and Learning," ISU General Staff Papers 201201010800003414, Iowa State University, Department of Economics.
    5. Demont, Matty & Dillen, Koen & Daems, Wim & Sausse, Christophe & Tollens, Eric & Mathijs, Erik, 2009. "On the proportionality of EU spatial ex ante coexistence regulations," Food Policy, Elsevier, vol. 34(6), pages 508-518, December.

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