Public Good Provision with Robust Decision Making
In this paper, we study a two-country dynamic setup with environmental externalities and potential model misspecification in relation to this public good. Under model uncertainty, robust policies help to correct the inefficiencies associated with free riding on public good provision, implying that there are welfare benefits from robust policies even when the fear of model misspecification proves to be unfounded. However, the incentive to free ride on the precautionary policies of the other country may discourage the implementation of robust policies, despite their welfare superiority.
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- Konstantinos Angelopoulos & George Economides & Apostolis Philippopoulos, 2010.
"First-and second-best allocations under economic and environmental uncertainty,"
2010_35, Business School - Economics, University of Glasgow.
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- Giannis Vardas & Anastasios Xepapadeas, 2010.
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Environmental & Resource Economics,
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- Svec, Justin, 2012.
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Journal of Economic Dynamics and Control,
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- George Economides & Apostolis Philippopoulos, 2008. "Growth enhancing policy is the means to sustain the environment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 207-219, January.
- Dennis, Richard, 2010. "How robustness can lower the cost of discretion," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 653-667, September.
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