Optimal Credible Warnings
Marie-Amélie Boucher and
Vincent Boucher ()
Cahiers de recherche from Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques
We consider a decision maker who is responsible for issuing fl ood warnings for the population. The population is uncertain about the credibility of the warnings and adjusts its beliefs following false alerts or missed events. We show that low credibility leads the decision maker to issue warnings for lower probabilities of fl ooding. In practice, those probabilities are provided by hydrological forecasts. We therefore use our model to compare welfare under alternative real-world hydrological forecasts. We find that when forecasts include non-realistic extreme scenarios, the economy may remain stuck in a state characterized by many false alerts and poor credibility.
Keywords: Flood warnings; Renewable resource management; Uncertainty (search for similar items in EconPapers)
JEL-codes: D81 Q28 C61 (search for similar items in EconPapers)
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Working Paper: Optimal Credible Warnings (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:crrecr:1813
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