Regulatory Actions Under Adjustment Costs and the Resolution of Scientific Uncertainty

David Hennessy and GianCarlo Moschini

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Food system regulators often decide whether to ban existing practices or approve new technologies without conclusive scientific evidence on possible damage and knowing that resolution is likely in the future. In a model with three decision points and stochastic resolution of uncertainty, we study interactions between expected losses due to regulation and information availability when a regulator is deciding on an early reversible ban and on a later reversible ban. Adjustment costs create inertia concerning intermediate signals such that earlier decisions are not overturned, and also a bias against imposing an early ban. The prospect of more later-stage information can increase or decrease the incentive to ban early, but research decreases the incentive to ban early.

Date: 2006-05-01
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Published in American Journal of Agricultural Economics, May 2006, vol. 88 no. 2, pp. 308-323

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Journal Article: Regulatory Actions under Adjustment Costs and the Resolution of Scientific Uncertainty (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:12719

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