Measuring uncertainty, transfer entropy and G-causality In Environmental Economics

George Halkos and Christos Kitsos

MPRA Paper from University Library of Munich, Germany

Abstract: Human activities have created environmental degradation with the internalization of the resulting externalities having been the main concern for policy makers worldwide. Uncertainty and unconvincing scientific evidence of various biophysical processes are present in many planned environmental policies. An important source of model uncertainty is accounted by entropy with the typical normal distribution being inadequate in such analyses challenging for more sensible approximations. The problems are, from one side the fat tails characteristic in this area and on the other side what probability density function (pdf) to be chosen. The choice of the appropriate probability model describing the phenomenon that is the pdf is a main priority in any decision making planning. Here we pay attention on the entropy and even more on the transfer entropy in Environmental Economics and the existing underlying uncertainty based on the probability theory. We show that the γ-order Generalized Normal distribution covers both requests, due the "International constant" (γ/(γ-1))**(γ/(γ-1)), leading to a number of pdf, and the Logarithm Sobolev Inequalities (LSI), which provide a solid background.

Keywords: Uncertainty; Environmental Economics; transfer entropy; G-causality. (search for similar items in EconPapers)
JEL-codes: C00 C46 Q50 Q56 Q58 (search for similar items in EconPapers)
Date: 2024-08-19
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