climate change uncertainty irreversibility and the precautionary principle this paper begins with a critique of the option value argument used by economists to explain and justify the precautionary principle the argument is shown to misrepresent both uncertainty and irreversibility an alternative justification of the precautionary principle is discussed under conditions of keynesian uncertainty and irreversibility interpreted in terms of incommensurability recent formal decision theories under keynesian uncertainty are reviewed and their limitations explored with particular reference to the insights that decision theory can bring to understanding the precautionary principle throughout the decision problems under consideration are those faced by climate change policy makers copyright oxford university press

global warming irreversibility and learning a number of economists have argued that the literature on the irreversibility effect implies that current abatement of greenhouse gas emissions should be greater when there is the possibility of obtaining better information in the future about the potential damages from global warming than when there is no possibility of obtaining better information in this paper we show that even the simplest model of global warming does not satisfy either of epstein s 1980 sufficient conditions so it is not possible to use epstein s analysis to tell whether the irreversibility effect applies to models of global warming we derive an alternative sufficient condition for the irreversibility effect to hold

uncertainty and risk in financial markets this paper considers a general equilibrium model in which the distinction between uncertainty and risk is formalized by assuming agents have incomplete preferences over statecontingent consumption bundles as in bewley 1986 without completeness individual decision making depends on a set of probability distributions over the state space a bundle is preferred to another if and only if it has larger expected utility for all probabilities in this set when preferences are complete this set is a singleton and the model reduces to standard expected utility in this setting we characterize pareto optima and equilibria and show that the presence of uncertainty generates robust indeterminacies in equilibrium prices and allocations for any specification of initial endowments we derive comparative statics results linking the degree of uncertainty with changes in equilibria despite the presence of robust indeterminacies we show that equilibrium prices and allocations vary continuously with underlying fundamentals equilibria in a standard risk economy are thus robust to adding small degrees of uncertainty finally we give conditions under which some assets are not traded due to uncertainty aversion

alternative models of individual behaviour and implications for environmental policy abstract most insights of environmental economics are in line with the standard neoclassical economic model of rational behaviour formulated in terms of maximization of utility in general or of profits in particular the standard theory of environmental policy is a case in point however the maximization hypothesis and its methodological foundation have been criticized on many grounds related to a lack of either logical or empirical content moreover over the years a great many alternative models of behaviour have been proposed both criticism and alternatives are surveyed here attention is devoted to relevant insights from the philosophy of science the notion of methodological individualism and other criticism the alternative behavioural models include bounded rationality and satisficing lexicographic preferences habitual behaviour incommensurability and multicriteria evaluation and various models of behaviour under uncertainty major implications of the criticism and alternative models of individual behaviour for environmental policy theory are outlined

keynesian uncertainty and liquidity preference in his economic writings keynes hints that his liquidity preference analysis is informed by the notion of evidential weight that first appears in his earlier treatise on probability this paper reviews keynes s distinction between probability and evidential weight and offers an account of its influence in his later work on the incentive to hold liquid assets alternative representations of the keynesian uncertainty liquidity preference relation are assessed in the light of this discussion james tobin s mean variance approach the keynesian fundamentalist view of paul davidson and the flexibility approach represented by louis makowski copyright 1994 by oxford university press

political regimes and the extractive capacity of governments taxation in democracies and dictatorships recent political and economic transformations in latin america africa asia and eastern europe have brought about a renewed interest in the incentives and capabilities of different types of political regimes to implement policies that are deemed necessary for economic development in particular policies aimed at increasing tax revenue one central question is whether democracies can collect as much in taxes as dictatorships this article addresses this question by examining whether regime type classified as democracy or dictatorship has a causal impact on a government s capacity to mobilize resources through taxation on the basis of data gathered for 108 countries for the period between 1970 and 1990 the article concludes that observed differences across countries regarding the level of taxes collected by the government are not due to the fact that some are under a democracy and others under a dictatorship concerns about the inability of democratic regimes to collect taxes are therefore unfounded

the rationality of a safe minimum standard the safe minimum standard sms is a policy shift to safety defaults to forestall irreversible outcomes critics charge an inconsistency what justifies business as usual cannot also justify switching to the sms currently the sms is only a procedural shift where economic optimality procedures are buttressed by extra special focus on uncertainty yet social welfare function may not be complete enough warranting a more fundamental sms shift numerous moral positions support this sms approach this sms also operationalizes the intolerable cost as a trigger point noting societies with lower tolerance for sacrifice must trigger the sms earlier

is there a necessary condition for democracy the role of state capacity in postcommunist countries although postcommunist countries share a common past the variability of outcomes in both democracy and economic reform is very large in the region only a few countries have become western type democracies in central and eastern europe and the baltic by contrast the norm is clearly not democracy for other soviet successor states in this article the author attributes this variation to differences in the infrastructural capacity of the state using both quantitative and qualitative analyses within 26 postcommunist countries the author argues that for democracy to flourish the state must first possess the necessary means to maintain law and order and to protect the rights of citizens in other words to ensure the maintenance and delivery of essential public goods the results show that the links between a strong state that has been able to apply a definitive set of rules and democratic institutions are clear

how to decide when experts disagree uncertainty based choice rules in environmental policy environmental economists have traditionally addressed the issue of choice under uncertainty by applying the expected utility hypothesis when policymakers face a panel of experts with widely divergent beliefs the problem may more accurately be described as a case of choice under pure uncertainty arrow and hurwicz 1972 demonstrate that rational choice criteria under pure uncertainty will focus on the extremes of the state space not the midpoint as is typically assumed using nordhaus s dice model uncertainty based choices about global warming policies are evaluated linkages to the safe minimum standard and the precautionary principle are also discussed

the structural constraints of the world economy on national political development this study asserts that there are no unilinear patterns of political or economic development common to the states of the world we seek to illustrate using a pooled time series analysis that there are at least three distinct paths of politico economic development these paths correspond to the successive asymmetric integration of different clusters of states into the world economy along each trajectory of development we find that the constellation of internal political and economic relationships is defended by employing an ideology of political or economic democracy

authoritarian state building and the sources of regime competitiveness in the fourth wave the cases of belarus moldova russia and ukraine this article explores the sources of regime competitiveness in the post cold war era through a structured comparison of regime trajectories in belarus moldova russia and ukraine for the period 1992 2004 an examination of these cases suggests the need for a fundamental rethinking of the commonly held view of the transition process especially in countries that face relatively weak international democratizing pressures approaching these countries as unconsolidated autocracies rather than as simply emerging democracies draws attention to key sources of political competition that have largely been ignored in the literature on competitive regimes thus competitive politics in belarus moldova russia and ukraine were rooted less in robust civil societies strong democratic institutions or leadership than in the inability of incumbents to maintain power or concentrate political control by preserving elite unity controlling elections and or using force against opponents such pluralism by default has been the outgrowth of the strength of anti incumbent national identity and incumbent weakness as defined by a lack of know how ineffective incumbent organization and or the weakness of certain dimensions of state power

ambiguity and uncertainty in ellsberg and shackle this paper argues that the similarities between ellsberg s and shackle s frameworks for discussing the limits of the probabilistic approach to decision theory are more important than usually admitted the paper discusses the grounds on which the ambiguity surrounding the decision maker in ellsberg s urn experiments can be deemed analogous to the uncertainty faced by shackle s entrepreneur taking crucial decisions the two authors insights are assessed and special attention is paid to the criteria for decision under uncertainty they put forward the paper establishes a link between ellsberg s and shackle s perspectives and the non additive probability approach of gilboa and schmeidler an approach that offers an alternative to standard probability calculus which can be of use to analyse both ambiguity and uncertainty the comparison between ellsberg and shackle draws on an interpretation of keynes s treatise on probability emphasising keynes s rejection of both well defined probability functions and maximisation as a guide to human conduct it is shown that keynes s viewpoint implies a reconsideration of the boundaries of probability theory that is in the same vein of ellsberg s and shackle s concern in the years of the consolidation of savage s new probabilistic mainstream copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

environmental prices uncertainty and learning there is an increasing demand for putting a shadow price on the environment to guide public policy and incentivize private behaviour in practice setting that price can be extremely difficult as uncertainties abound there is often uncertainty not just about individual parameters but about the structure of the problem and how to model it a further complication is the second best nature of real environmental policy making in this paper we propose some practical steps for setting prices in the face of these difficulties drawing on the example of climate change we consider how to determine the overall target for environmental protection how to set shadow prices to deliver that target and how we can learn from the performance of policies to revise targets and prices perhaps most significantly we suggest that estimates of the marginal cost of environmental protection rather than the marginal benefit will often provide the more consistent and robust prices for achieving targets

theories of choice under ignorance and uncertainty abstract in this paper knight s distinction between risk and uncertainty and its significance for economic analysis are examined the paper consists of a survey of some recent developments on the theory of choice under uncertainty and some applications of these theories to problems for which bayesian decision theory has not proved entirely satisfactory two problems are examined in detail the first is that of finance and insurance and the second is that of risktaking behaviour with special emphasis on lotteries

fact free learning aragones acknowledges financial support from the spanish ministry of science and technology grant sec2003 01961 and creabarcelona economics aragones gilboa and schmeidler gratefully acknowledge support from the polarization and conflict project cit 2 ct 2004 506084 funded by the european commission dg research sixth framework programme gilboa and schmeidler gratefully acknowledge support from the israel science foundation grant 790 00 and 975 03 postlewaite gratefully acknowledges support from national science foundation grant sbr 9810693

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

the ideology of efficiency searching for a theory of policy analysis the potential pareto improvement criterion and other measures of economic efficiency do not pass the test of consistency and coherence within economic theory nor do such measures accord with what public decision makers seek in policy advice from economists such efficiency measures are nonetheless durable components of the ideology of economics in general and benefit cost analysis in particular the objectivity of the policy scientist has been confused with the objectivity of the science while economic efficiency has no claim to objectivity the policy scientist can be an objective analyst of policy choices

learning and stock effects in environmental regulation the case of greenhouse gas emissions abstract this paper concerns the optimal regulation of greenhouse gases that lead to global climate change in particular we focus on uncertainty and learning which over time resolves uncertainty we present an empirical stochastic model of climate economy interactions and present results on the tension between postponing control until more is known vs acting now before irreversible climate change takes place uncertainty in our model is in the damage caused by global warming the results suggest that a temporary carbon tax may dominate a permanent one because a temporary tax may induce increased flexibility

capturing the complexity of biodiversity a critical review of economic valuation studies of biological diversity biodiversity is a highly complex and abstract ecological concept even though it is not one physical entity it influences human well being in multiple ways mostly indirectly while considerable research effort has been spent on the economic valuation of biodiversity it remains to be a particularly challenging valuation object valuation practitioners therefore have to use proxies for biodiversity many of which are very simple single species habitats this paper presents a comprehensive and critical review of biodiversity valuation studies with special emphasis on biodiversity valuation in order to depict the state of the art in this research field it develops evaluation criteria so as to identify best practice applications and shows that the field of biodiversity valuation studies is rather heterogeneous regarding both valuation objects and valuation methods on the basis of our evaluation criteria and best practice studies we suggest that to account for the complexity and abstractness of biodiversity multi attribute approaches with encompassing information provision should be used that emphasise the roles biodiversity plays for human well being

comparative democracy the economic development thesis in comparative politics an established finding that economic development fosters democratic performance has recently come under challenge we counter this challenge with a dynamic pooled time series analysis of a major but neglected data set from 131 nations the final generalized least squares autoregressive moving averages estimates n 2 096 appear robust and indicate strong economic development effects dependent in part on the nation s position in the world system for the first time rather hard evidence is offered on the causal relationship between economics and democracy according to granger tests economic development causes democracy but democracy does not cause economic development overall the various tests would seem to advance sharply the modeling of democratic performance

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catastrophic losses abstract the paper investigates a decision making process involving both risk and ambiguity differently from existing papers basili m chateauneuf a fontini f 2005 choices under ambiguity with familiar and unfamiliar outcomes theory and decision 58 195 207 chichilnisky g 2000 axiomatic approach to choice under uncertainty with catastrophic risks resources and energy economics 22 221 231 chichilnisky g 2002 in el shaarawi a h piegorsch w w eds catastropic risks encyclopedia of environmetrics vol 1 john wiley sons ltd chichester uk pp 274 279 we assume that in a choquet expected utility framework the decision maker is pessimistic with respect to unfamiliar catastrophic losses optimistic with respect to unfamiliar windfall gains and ambiguity neutral with respect to the familiar world a representation of the decision maker s choice is obtained that mimics the restricted bayes hurwicz criterion in this way a characterization of the precautionary principle is introduced for decision making processes under ambiguity with catastrophic losses and or windfall gains

comparative democratization big and bounded generalizations comparative studies of democratization have produced two types of generalizations those having nearly universal application and those applying to a range of countries within a region in the first category are such arguments as the role of high levels of economic development in guaranteeing democratic sustainability the centrality of political elites in establishing and terminating democracy and deficits in rule of law and state capacity as the primary challenge to the quality and survival of new democracies in the second category are contrasts between recent democratization in post socialist europe versus latin america and southern europe for example in the relationship between democratization and economic reform and in the costs and benefits for democratic consolidation of breaking quickly versus slowly with the authoritarian past the two sets of conclusions have important methodological implications for how comparativists understand generalizability and the emphasis placed on historical versus pr

uncertainty and climate change uncertainty is pervasive in analysis of climate change how should economists allow for this and how have they allowed for it this paper reviews both of

arch models properties estimation and testing abstract the aim of this survey paper is to provide an account of some of the important developments in the autoregressive conditional heteroskedasticity arch model since its inception in a seminal paper by engle 1982 this model takes account of many observed properties of asset prices and therefore various interpretations can be attributed to it we start with the basic arch models and discuss their different interpretations arch models have been generalized in different directions to accommodate more and more features of the real world we provide a comprehensive treatment of many of the extensions of the original arch model next we discuss estimation and testing for arch models and note that these models lead to some interesting and unique problems there have been numerous applications and we mention some of these as we present different models the paper includes a glossary of the acronyms for the models we describe

the econometric analysis of models with risk terms summary in this paper we have attempted to provide an integrated approach to the estimation of models with risk terms it was argued that there exist orthogonality conditions between variables in the information set and higher order moments of the unanticipated variable density these could be exploited to provide consistent estimators of the parameters associated with the risk term specifically it was recommended that an iv estimator should be applied with instruments constructed from the information set four existing methods commonly used to estimate models with risk terms are examined and applications of the techniques are made to the estimation of the risk term in the us c exchange market and the effects of price uncertainty upon production

checks and balances private information and the credibility of monetary commitments the authors develop and test several new hypotheses about the anti inflationary effect of central bank independence and exchange rate pegs in the context of different institutions and different degrees of citizen information about government policies theory provides strong reason to believe that while central bank independence will prove more effective as a commitment mechanism in countries where multiple players in government have veto power checks and balances the number of veto players will have no effect on the credibility of exchange rate pegs conversely the authors argue that central bank independence does not solve the problems of commitment that arise when citizens are imperfectly informed about the contribution of government policy to inflation exchange rate pegs however mitigate these problems the authors present extensive evidence from cross country tests using newly developed data that provide strong support for their propositions

the relationship between forecast dispersion and forecast uncertainty evidence from a survey data arch model this paper examines empirically the relationship between measures of forecast dispersion and forecast uncertainty from data on inflation expectations from the livingston survey series and the survey research center src survey series because the survey series do not provide probabilistic forecasts of inflation we derive measures of inflation uncertainty by modelling the conditional variance of the inflation forecast errors from the survey series as an autoregressive conditional heteroscedastic arch process the analysis is complicated by the fact that the overlap of forecast horizons for the survey series does not preclude the model s disturbance terms from displaying autocorrelation and also places a restriction on the specification for the arch measures of inflation uncertainty we estimate the model using hansen s 1982 generalized method of moments gmm procedure to account for the presence of serial correlation and conditional heteroscedasticity in the disturbance terms the results generally support the hypothesis that the measures of forecast dispersion across survey respondents are positively and statistically significantly associated with the measures of inflation uncertainty however the appropriateness of using forecast dispersion measures as proxies for inflation uncertainty is sensitive to the choice of the survey series

incommensurability and monetary valuation at the very heart of environmental cost benefit analysis cba is the claim that benefits and costs can be expressed in terms of money and hence made comparable in particular cba puts all benefits and costs on a cardinal monetary scale it assumes monetary commensurability a significant literature in ethics and political philosophy has arisen which doubts this assumption but has so far had little impact on the theory or practice of cba in light of this the paper assesses the defense of monetary commensurability offered by cost benefit analysts and the wider economics literature

prospects for a heterodox economics of the environment and sustainability this paper introduces a special issue on heterodox economics of the environment and sustainability at present humanity faces several challenges such as resource scarcity biodiversity loss and climate change and yet we would argue contributions from traditional heterodox schools of thought such as post keynesianism marxism and to a lesser extent institutionalism have had relatively little to say about them instead the economic analysis of environmental issues has been dominated by approaches inspired by neoclassical economics and latterly by ecological economics the special issue is part of an effort to stimulate more heterodox work on the environment and to explore connections between existing groups of scholars particularly between ecological and heterodox economists

deficient foresight a troublesome theme in keynesian economics the fact that john maynard keynes had made a distinguished contribution to the theory of probability 1921 no doubt predisposed many of his readers to imbue with great significance his subsequent remarks on the related topic of uncertainty in economic decision making among those who have provided commentaries on his work there are those who have singled out this uncertainty theme not only for its special importance but also for its potential for analytical subversion the purpose of this paper is to scrutinize the ideas involved in this particular aspect of keynes work together with the lines of argument that have emerged from those commentators who have pursued it the result of this scrutiny will be to call into question the idea that there is anything peculiarly subversive in the analytical consequences of broaching problems of uncertainty in economic decision making i shall argue rather that as an analytical issue it is depending on how it is handled either innocuous or else quite indiscriminately destructive

scientific progress and irreversibility an economic interpretation of the precautionary principle abstract we consider the problem of the optimal use of a good whose consumption can produce damages in the future scientific progress is made over time that provides information on the distribution of the intensity of damages we show that this progress induces earlier prevention effort only if prudence is larger than twice absolute risk aversion this paper thus identifies the class of quite restrictive but plausible conditions such that scientific uncertainties justify an immediate reduction of the consumption of a potentially toxic substance

justifying precautionary policies incommensurability and uncertainty abstract when decisions are taken in conditions of keynesian or knightian uncertainty and when there is a threat of serious or irreversible environmental damage the precautionary principle is often recommended to guide decision making however the precautionary principle has been widely criticised in response to these criticisms a qualitative version of the precautionary principle is developed which draws its normative content from a blend of formal decision theory and political philosophy it is argued that precautionary action can be justified by some flexible combination of uncertainty and incommensurability the greater the uncertainty the less incommensurability is required to justify precautionary action and vice versa throughout the paper the arguments are explored using the example of climate change decision problems

choice under uncertainty with the best and worst in mind neo additive capacities the concept of a non extreme outcome additive capacity neo additive capacity is introduced neo additive capacities model optimistic and pessimistic attitudes towards uncertainty as observed in many experimental studies moreover neo additive capacities can be applied easily in economic problems as we demonstrate by examples this paper provides an axiomatisation of choquet expected utility with neo capacities in a framework of purely subjective uncertainty

non bayesian decision theory ahead of its time the case of g l s shackle this article deals with the reception of george l s shackle s volume expectation in economics introducing a unique attempt to discard the probability framework in the investigation of behaviour under uncertainty through a fresh reading of the textual evidence including correspondence held at cambridge university library the article assesses why decision theorists interest in shackle s theory substantial during the 1950s faded away in the early 1960s the article argues that apart from shackle s refusal to comprehend that his critics were under the influence of a new subjective probability perspective a major explanation of the dismissal of his work stays in shackle s stance not to establish a collaborative link with those critics who showed a positive attitude towards his theory the article shows though that the discussion between shackle and his critics hinged on a number of topics that are still crucial to the current developments of decision theory

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

ethics of the discount rate in the stern review on the economics of climate change any comparison of the costs and benefits of climate change is dominated by the chosen discount rate but although the stern review emphasises the ethical nature of the parameters entering into its choice of a relatively low discount rate its discussion of the pure time preference parameter is unbalanced in particular no consideration is given to the role of agent relative ethics which i has a wellestablished philosophical pedigree going back to david hume ii is likely to correspond closely to world wide public attitudes towards intergenerational welfare and iii would entail discounting a unit of welfare accruing to future generations compared to an equal unit accruing to people alive today at a positive rate the authors also discuss the other ethical parameter upon which the discount rate depends namely the elasticity of marginal utility with respect to consumption in the conventional model this simultaneously reflects different aspects of inequality aversion as well as risk aversion which complicates its interpretation finally they discuss the divergence between market rates of discount and the low rate chosen in the review and the limitations on the one hand on the normative significance of market rates as well as the danger on the other hand of relying on rates chosen by elites or philosopher kings

generalized instrumental variables estimation of autoregressive conditional heteroskedastic models abstract this paper considers an alternative to maximum likelihood ml estimation of the autoregressive conditional heteroskedastic arch model introduced in engle 1982 specifically the analysis demonstrates that hansen s 1982 generalized method of moments gmm procedure can be applied for estimation of arch models as an illustration we compare the results from ml estimation and gmm estimation of engle and kraft s 1983 arch model of u s inflation

on keynes s conception of the weight of evidence abstract various modern decision theories seek to capture the intuition behind keynes s conception of evidential weight keynes was nevertheless hesitant about the practical relevance of weight in the process of rational decision making because of the stopping problem of finding a rational principle to decide where to stop the process of acquiring information in forming a probability judgment before making a decision this paper discusses the relevance of the stopping problem by way of an inquiry into the nature properties and implications for rational decision making of keynes s conception of evidential weight it is argued that in practical choice situations the decision maker often decides where to stop the process of acquiring information by following keynes s advice to consider the degree of completeness of the available information before making a decision this method implies that the decision maker is able to arrive at an assessment of the dimension of what may be called her relevant ignorance by considering some examples of how the acquisition of new evidence may affect the decision maker s behaviour it is argued that it is in fact possible to talk reasonably about relevant ignorance or what are sometimes called unknown unknowns and that this concept might explain a range of human behaviours while this concept does not provide a rational principle to solve the stopping problem it does provide a method of inquiry for dealing with a number of paradoxes not solvable within the bayesian approach

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis

uncertainties in macroeconomic assessments of low carbon transition pathways the case of the european iron and steel industry abstract the climate targets agreed in paris 2015 render deep decarbonization of energy and emission intensive industries crucial policy makers are interested in the macroeconomic consequences of such decarbonization pathways and often rely on integrated modelling studies however the underlying modelling assumptions and uncertainties often remain unquestioned or invisible although they may govern the models results for the case of a zero process emission pathway of the european iron and steel industry we demonstrate how different assumptions on different layers of uncertainty influence results we show that effects strongly depend on technology choice prevailing macroeconomic states as well as regional characteristics the underlying socio economic development and the climate policy trajectory seem to play a less important role particularly we find that the choice of model i e which macroeconomic theory strand it arises from influences the sign and magnitude of macroeconomic effects and thus should be well understood in terms of appropriate interpretations by both modelers and policy makers we emphasize that model assumptions should be transparent results sought as to be robust across a range of possible contexts and presented together with the conditions under which they are valid to that end co design and co production in research would support its relevance and applicability

the new institutional economics and the theory of behaviour under uncertainty the new institutional economics nie is diverse in terms of the theory of behaviour under uncertainty some views are close to neoclassical economics but others are similar to those held by heterodox economists distinctions between procedural and substantive uncertainty weak and strong uncertainty and ambiguity and fundamental uncertainty help to identify different approaches to uncertainty in nie regarding the influence of institutions on economics behaviour not all nie focuses on institutions as constraints and takes individuals as given the dominant views of rationality in nie are standard neoclassical maximization and bounded rationality but alternative notions have also been defended

choice under partial uncertainty this paper analyzes problems of choice under uncertainty where a decisionmaker does not use subjective probabilities the decisionmaker has a set of beliefs about which states are more likely than others but his beliefs cannot be represented as subjective probabilities three main kinds of decision rules are possible in this framework these are maximin type maximax type and choosing that action that gives the highest payoff in the state which the decisionmaker believes to be most likely the author replaces the commonly used merger of states axiom with a version of the sure thing principle copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association