The precautionary principle when project implementation capacity is congestible

Anthony Heyes and Sandeep Kapur

Theory and Decision, 2023, vol. 95, issue 4, No 6, 711 pages

Abstract: Abstract The precautionary principle justifies postponing the implementation of development projects to await better information about their environmental impacts. But if implementation capacity is congestible, as is often the case in practical settings, a postponed project may have to vie for implementation priority with projects that arrive later. Limitations of implementation capacity create two risks. First, it may sometimes not make sense to go back to a postponed project, even if it is later revealed to be a good one. Second, the planner may find it worthwhile to go back to it, but at the expense of undesirable delay of subsequent projects. We consider a planner facing a sequence of projects that vary stochastically in their (1) importance and (2) improvability, but knowing that implementation capacity is congestible. The scope for congestion implies a ‘bonus’ for earlier-than-otherwise decisions, in common parlance ‘keeping the desk clear’, which works against the well-understood option value that encourages postponement. The optimal decision rule depends upon the stochastic environment whereby future projects are generated, in ways that are not obvious. The value of the bonus is increasing in the expected importance of future projects but decreasing in their expected improvability. Higher variability of the importance of projects, in the sense of mean-preserving spread, increases the size of the bonus, but variability in their improvability has a generally ambiguous impact. We characterize the adjusted decision rule and note its implications for the conduct of cost-benefit informed policy.

Keywords: Precautionary principle; Sequential decision-making; Project appraisal; Bottlenecks (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11238-023-09934-y Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:theord:v:95:y:2023:i:4:d:10.1007_s11238-023-09934-y

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/11238/PS2

DOI: 10.1007/s11238-023-09934-y

Access Statistics for this article

Theory and Decision is currently edited by Mohammed Abdellaoui

More articles in Theory and Decision from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().