Catastrophes, delays, and learning

François Salanié and Matti Liski

No 20-1148, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We propose a simple and general model of experimentation in which reaching untried levels of a stock variable may, after a stochastic delay, lead to a catastrophe. Hence, at any point in time a catastrophe might well be under way, due to past experiments. We show how to measure this legacy of the past from prior beliefs and the chronicle of stock levels. We characterize the optimal policy as a function of the legacy and show that it leads to a new protocol for planning that applies to a general class of problems, encompassing the study of pandemics or climate change. Several original policy predictions follow, e.g., experimentation can stop but resume later.

Keywords: catastrophes; experimentation; delays (search for similar items in EconPapers)
JEL-codes: C61 D81 Q54 (search for similar items in EconPapers)
Date: 2020-09-24
New Economics Papers: this item is included in nep-env, nep-mic and nep-ore
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Working Paper: Catastrophes, delays, and learning (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:124745

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