Public Good Provision with Robust Decision Making

Konstantinos Angelopoulos (), George Economides and Apostolis Philippopoulos

No 3996, CESifo Working Paper Series from CESifo

Abstract: In this paper, we study a two-country dynamic setup with environmental externalities and potential model misspecification in relation to this public good. Under model uncertainty, robust policies help to correct the inefficiencies associated with free riding on public good provision, implying that there are welfare benefits from robust policies even when the fear of model misspecification proves to be unfounded. However, the incentive to free ride on the precautionary policies of the other country may discourage the implementation of robust policies, despite their welfare superiority.

Keywords: model uncertainty; externalities; robust policies (search for similar items in EconPapers)
JEL-codes: D81 H23 H41 (search for similar items in EconPapers)
Date: 2012
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