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Hard Uncertainty and Environmental Policy

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Sustainability: Dynamics and Uncertainty

Abstract

Games of chance provide the paradigmatic cases of ‘soft’1 uncertainty to which traditional decision theories naturally apply; environmental economics provides many paradigmatic cases of ‘hard’ uncertainty which cannot be properly analyzed under the present state of the art. This restricts the application of traditional decision theory to `soft’ risks which may be covered by traditional market instruments, such as commercial insurance and financial securities. These limits are fully admitted by frequentist (or objectivist) decision theories. On the contrary, Bayesian theory claims to be applicable to any kind of uncertainty. Unfortunately, as is argued in this paper, this is not the case. Even classic Bayesian theory is not really applicable to ‘hard’ risks such as those involved in many important environmental problems. This does not imply that hard uncertainty cannot be analyzed in scientific terms. Recent advances in decision theory have suggested various promising approaches to the analysis of hard uncertainty, which — to the best of my knowledge — have not yet been applied in environmental economics. This paper aims to survey the relevant literature on the subject and to draw some implications for environmental risk control.

A preliminary and shorter draft of this paper has been published in (Vercelli, 1995).

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  1. Alessandro Vercelli
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Graciela Chichilnisky Geoffrey Heal Alessandro Vercelli

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Vercelli, A. (1998). Hard Uncertainty and Environmental Policy. In: Chichilnisky, G., Heal, G., Vercelli, A. (eds) Sustainability: Dynamics and Uncertainty. Fondazione Eni Enrico Mattei (FEEM) Series on Economics, Energy and Environment, vol 9. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-4892-4_10

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