Allocating Resources in an Uncertain World: Water Management and Endangered Species

Richard T. Woodward and W. Douglass Shaw

American Journal of Agricultural Economics, 2008, vol. 90, issue 3, pages 593-605

Abstract: Instream flows may be essential in protecting aquatic species that are threatened or endangered. An economic model of the optimal allocation of water under pure uncertainty is developed, with particular attention paid to the situation when a species characterized by critical depensation is affected by instream flows. We adopt the notion of pure uncertainty that Frank Knight and Daniel Ellsberg intended, which applies when decision makers cannot reduce their uncertainty to a unique probability distribution. Following recent work by Hansen, Sargent, and others, we employ robust control as a way to deal with this problem. Copyright Copyright 2008 American Agricultural Economics Association.

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