The Welfare Cost of Uncertainty in Policy Outcomes

Edward Schlee and V. Smith

No 22864, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper proposes a simple index of the welfare significance of uncertainty in the public goods resulting as policy outcomes. Our measure is the ex ante compensation an individual would require to accept an uncertain level of service compared to receiving the expected value of the distribution of possible values for that service. Our compensation measure is a function of the coefficient of relative risk aversion, the variance in the measure of environmental service associated with policy and relevant for the individual, and a set of conventional parameters that describe the properties of nonmarket benefit measures under conditions of certainty. We would expect that the inverse virtual price elasticity of the for the environmental service and the square of the coefficient of relative variation are the primary factors influencing the size of our compensation index.

JEL-codes: H41 Q50 Q51 (search for similar items in EconPapers)
Date: 2016-11
Note: EEE
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Published as Edward E. Schlee & V. Kerry Smith, 2019. "The welfare cost of uncertainty in policy outcomes," Journal of Environmental Economics and Management.

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Related works:
Chapter: The welfare cost of uncertainity in policy outcomes (2022)
Journal Article: The welfare cost of uncertainty in policy outcomes (2019)
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