Model Uncertainty, Ambiguity and the Precautionary Principle: Implications for Biodiversity Management

Abstract

We analyze ecosystem management under 'unmeasurable' Knightian uncertainty or ambiguity which, given the uncertainties characterizing ecosystems, might be a more appropriate framework relative to the classic risk case (measurable uncertainty). This approach is used as a formal way of modelling the precautionary principle in the context of least favorable priors and maxmin criteria. We provide biodiversity management rules which incorporate the precautionary principle. These rules take the form of either minimum safety standards or optimal harvesting under precautionary approaches.

Optimal Control in Space and Time and the Management of Environmental Resources

“…General approaches can be found, for example, in Hansen & Sargent (2001b), Hansen et al (2006), and Hansen & Sargent (2008). The general methodology has been applied to areas such as macroeconomics (e.g., Hansen & Sargent 2001aOnatski & Williams 2003;Leitemo & Söderström 2008), finance (e.g., Maenhout 2004Maenhout , 2006, and environmental and resource economics (e.g., Roseta-Palma & Xepapadeas 2004, Asano 2010, Vardas & Xepapadeas 2010, Athanassoglou & Xepapadeas 2012. Robust control methods either in a temporal setup or in a spatiotemporal setup provide a prominent area for further research.…”

Pollution control with uncertain stock dynamics: When, and how, to be precautious

“…In contrast to previous contributions [10,34,7,38] we provide an explicit analytical solution to the maxmin problem that clarifies the structure of robust feedback policies. 7 Moreover, to the best of our knowledge, our paper is the first to (a) completely characterize and interpret the stochastic pollution dynamics that result and (b) attach a statistically meaningful, as well as analytically tractable, parameter on the degree of model misspecification.…”

“…Gonzales [10] applied robust control to the regulation of a stock pollutant under multiplicative uncertainty introduced by Hoel and Karp [16]. Roseta-Palma and Xepapadeas [29] studied water management under ambiguity, while Vardas and Xepapadeas [34] did the same in the context of biodiversity management. Funke and Paetz [7] applied the robust control framework to a numerical model of climate change while Xepapadeas [38] studied an international game of pollution control under cooperative and non-cooperative assumptions on countries' behavior.…”

“…7 To be fair, Gonzalez [10] and Funke and Paetz [7] studied discrete-time models which do not lend themselves to nice closed-form solutions and in which even steady-state results are hard to come by Gonzalez [10]. Along similar lines, Vardas and Xepapadeas [34] focused on a significantly more complex nonlinear model, which they had to linearize around the steady state in order to derive some insight into the structure of optimal solutions. Xepapadeas [38] studied a similar linear-quadratic model as ours but stopped short of the more complete analysis we perform here, focusing instead on determining the 'cost of precaution', i.e., the welfare loss that Knightian uncertainty leads to.…”

Precaution and proportionality in the management of global environmental change

“…If the span of potential models is small, the risk of wasting resources would also be small; in this case, maximin may be compelling. Vardas and Xepapadeas (2010), focusing on an application in which the set of scientific models (priors) can be constructed as a local neighborhood of a welldefined reference model, associate the precautionary principle with a version of robust control that embeds maximin in a closedloop dynamic control setting. These methods were introduced into the economics literature by Hansen andSargent (2001, 2008).…”