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Acting in the Darkness: Towards some Foundations for the Precautionary Principle

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  • Guillouet, Louise
  • Martimort, David

Abstract

Invoked to guide actions under irreversibility, uncertainty and limited information, the Precautionary Principle states that decision-makers should act cautiously unless the consequences of acts are known. We consider a setting where the stock of past actions, passed a tipping point which remains unknown, increases the probability of a catastrophe. When past acts are observable, decision-makers can reconstruct the whole evolution of stock and beliefs and follow an optimal trajectory. Otherwise, and in accordance with the Precautionary Principle, they act cautiously, remaining too optimistic on their ability to delay the tipping point. This suboptimal behaviour has minor consequences on welfare.

Suggested Citation

  • Guillouet, Louise & Martimort, David, 2023. "Acting in the Darkness: Towards some Foundations for the Precautionary Principle," TSE Working Papers 23-1411, Toulouse School of Economics (TSE), revised Jul 2024.
    • Handle: RePEc:tse:wpaper:127911
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    References listed on IDEAS

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    1. Pablo Garcia-Sanchez & Olivier Pierrard, 2023. "Uncertain lifetime, health investment and welfare," BCL working papers 178, Central Bank of Luxembourg.

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    More about this item

    Keywords

    Precautionary Principle; Environmental Risk; Tipping Point; Uncertainty and Irreversibility;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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