May 1, 1974The Quarterly Journal of Economics
Environmental Preservation, Uncertainty, and Irreversibility
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Discussion
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Implication
Theoretical economic analysis demonstrates that uncertainty surrounding environmental costs reduces net economic benefits, implying optimal policies must restrict environmentally damaging activities.
Key Points
- Explore the economic implications of uncertainty surrounding environmental cost estimates and determine how irreversibility affects efficient resource control policies.
- Analyzed economic decision-making models by replacing deterministic assumptions of environmental damage with probabilistic and stochastic representations.
- Evaluated the impact of uncertain future environmental damages on the calculated net benefits of development activities.
- Demonstrates that introducing uncertainty into environmental damage calculations leads to a direct reduction in the expected net benefits of environmentally harmful activities.
- Shows that optimal and efficient environmental management policies require establishing greater restrictions on activities with irreversible environmental consequences.
Cite This Study
Arrow et al. (1974) studied this question.