Precautionary Effect and Variations of the Value of Information

M. Lara () and L. Gilotte ()
Additional contact information
M. Lara: Université Paris–Est, CERMICS
L. Gilotte: CIRED

Chapter Chapter 8 in Uncertainty and Environmental Decision Making, 2009, pp 239-253 from Springer

Abstract: Abstract Consider an agent taking two successive decisions under uncertainty. After his first decision, a signal is revealed providing information about the state of nature and the second decision is taken accordingly. Suppose that the agent is an expected utility maximizer. The precautionary effect holds when, in the prospect of future information, his optimal initial decision is less than without (no signal). Indeed, the first decision is usually a scalar representing consumption, so that precaution is identified with less consumption. We introduce the second-period value of information as a function of the initial decision and show that, when this function is decreasing, the precautionary effect holds true. More generally the condition enables the comparison of optimal decisions related to different signals, not necessarily comparable. It also ties together and clarifies many conditions for the precautionary effect that are scattered in the environmental economics literature. A practical illustration with Nordhaus’ DICE model is provided.

Keywords: alue of information; uncertainty; learning; precautionary effect (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:isochp:978-1-4419-1129-2_8

Ordering information: This item can be ordered from
http://www.springer.com/9781441911292

DOI: 10.1007/978-1-4419-1129-2_8

Access Statistics for this chapter

More chapters in International Series in Operations Research & Management Science from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().