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Regulatory Actions Under Adjustment Costs and the Resolution of Scientific Uncertainty

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  • Hennessy, David A.
  • Moschini, GianCarlo

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.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12719.

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Date of creation: 01 May 2006
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Publication status: Published in American Journal of Agricultural Economics, May 2006, vol. 88 no. 2, pp. 308-323
Handle: RePEc:isu:genres:12719

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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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. 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.

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