Risk and Uncertainty in Environmental Economics: From Theory to Policy
A lack of awareness and understanding of risk and uncertainty can lead to poor decision making and higher costs for policy providers, as not accounting for them may produce policy which is inflexible and with a negative effect on welfare. Further, misunderstanding of and/or failure to account for risk and uncertainty can inhibit research and development for policy to which environmental economics can contribute (for example, in developing effective measures of sustainability). The aim of this project is to develop guidelines for ‘Best Practice’ approaches to risk and uncertainty in environmental economics for guiding policy development and implementation, taking into account key issues such as costs, irreversibility, adaptation and dynamics. These guidelines are developed by examining the frameworks commonly used by environmental economists to account for risk and uncertainty (such as the Precautionary Principle and Cost Benefit Analysis) as well as specifically developed theories (e.g. Quiggin’s Rank Dependent Utility Theory), borrowing from other disciplines (e.g. Prospect Theory) and drawing attention to lesser known ideas (e.g. Shackle’s Model).
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- Jean-Paul Chavas, 2008. "A Cost Approach to Economic Analysis Under State-Contingent Production Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(2), pages 435-466.
- Maler, Karl-Goran & Fisher, Anthony, 2006. "Environment, Uncertainty, and Option Values," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 13, pages 571-620 Elsevier.
- Jason F. Shogren & Thomas D. Crocker, 1992. "Endogenous Risk and Environmental Policy," Center for Agricultural and Rural Development (CARD) Publications 92-wp91, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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