Closing the Gap between Risk Estimation and Decision Making: Efficient Management of Trade-Related Invasive Species Risk

Robert Lieli and Michael Springborn
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Michael Springborn: University of California

The Review of Economics and Statistics, 2013, vol. 95, issue 2, 632-645

Abstract: This paper examines the implications of a binary action, binary outcome decision problem for estimating risk. We use data on the invasiveness of biological imports to develop the first comparison of two classical methods—maximum likelihood and Bayesian—against a third, the recently developed maximum utility (MU) approach. MU estimation uniquely takes advantage of the structure of the decision problem, which depends on a local rather than global fit to the model. Extending methods to account for an endogenously stratified sample, we show that the MU approach is less sensitive to specification error and can offer significant economic gains under model uncertainty. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Keywords: maximum utility estimation; Bayesian decision theory; endogenous stratified sample; risk assessment; invasive species (search for similar items in EconPapers)
JEL-codes: C25 C44 C53 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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