Journal
JOURNAL OF RISK AND UNCERTAINTY
Volume 27, Issue 1, Pages 77-103Publisher
SPRINGER
DOI: 10.1023/A:1025576823096
Keywords
Precautionary Principle; option value; scientific uncertainty; irreversibility
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The Precautionary Principle has provided the foundations for building a new risk regulatory pattern under scientific uncertainty. This paper investigates how classical economic theory may, or may not, justify the Precautionary Principle. It examines the link between irreversibility, the prospect of increasing information over time and risk management. In doing so, it brings closer the notion of option value to that of precaution. Using a general modelling framework, it identifies the conditions so that the Precautionary Principle is an efficient economic guideline. It also explains why precautionary policies are not likely to emerge in a competitive economy or in the presence of a global pollution problem.
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