Risk and Uncertainty in Environmental Economics: From Theory to Policy

A lack of awareness and understanding of risk and uncertainty can lead to poordecision making and higher costs for policy providers, as not accounting for themmay produce policy which is inflexible and with a negative effect on welfare. Further,misunderstanding of and/or failure to account for risk and uncertainty can inhibitresearch and development for policy to which environmental economics cancontribute (for example, in developing effective measures of sustainability). The aimof this project is to develop guidelines for ‘Best Practice’ approaches to risk anduncertainty in environmental economics for guiding policy development andimplementation, taking into account key issues such as costs, irreversibility,adaptation and dynamics. These guidelines are developed by examining theframeworks commonly used by environmental economists to account for risk anduncertainty (such as the Precautionary Principle and Cost Benefit Analysis) as wellas specifically developed theories (e.g. Quiggin’s Rank Dependent Utility Theory),borrowing from other disciplines (e.g. Prospect Theory) and drawing attention tolesser known ideas (e.g. Shackle’s Model).