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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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File URL: http://hdl.handle.net/10.1111/j.1467-8276.2006.00860.x
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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 88 (2006)
Issue (Month): 2 ()
Pages: 308-323

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Handle: RePEc:oup:ajagec:v:88:y:2006:i:2:p:308-323

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Cited by:
  1. Karianne De Bruin & Erik Ansink, 2011. "Investment In Flood Protection Measures Under Climate Change Uncertainty," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 2(04), pages 321-339.
  2. 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.
  3. Moschini, GianCarlo, 2008. "Biotechnology and the Development of Food Markets: Retrospect and Prospects," Staff General Research Papers 12982, Iowa State University, Department of Economics.

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