Precaution and information in a world of deep uncertainty: on the (negative) value of the Precautionary Principle

(franck.leclercq) #1

Chères et chers collègues

Pour la prochaine séance du Séminaire “Systèmes complexes en sciences sociales”, le vendredi 28 mai, nous accueillerons David Martimort (EHESS), pour un exposé sur le principe de précaution - titre et résumé ci-dessous.

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Bien cordialement

Jean-Pierre Nadal

Séminaire Systèmes complexes en sciences sociales

organisé par Henri Berestycki et Jean-Pierre Nadal

vendredi 28 mai, 15h

David Martimort

EHESS, École d’Économie de Paris

Titre: Precaution and information in a world of deep uncertainty: on the (negative) value of the Precautionary Principle .

Abstract: The Precautionary Principle is a controversial policy instrument, often criticized for stifling innovation and growth. To give an economic perspective on the consequences of adopting this Principle, we consider a dynamic decision-making problem under irreversibility and uncertainty. Examples include, consumption/production decisions in view of their consequences for global warming, or consumption/production of GMOs and their consequences on the biotope.

The basic elements of the model are as follows. A decision-maker enjoys surplus from his current actions but faces the possibility of an irreversible catastrophe, an event that follows a non-homogeneous Poisson process with a rate that depends on the stock of past actions. To model irreversibility, we assume that, passed a tipping point, the probability that a disaster arises increases once for all.

For such a context, the Precautionary Principle has repeatedly been invoked as a means to regulate risk. We ask whether such an institutional commitment to prudent actions, in a world where regulation are incomplete social contracts, has any value. We answer negatively.

To do so, we proceed we first describe optimal trajectories under two informarmational scenarios that reflect the degree of knowledge on the physical process under scrutiny.

In the first scenario, that serves as a benchmark, the tipping point is known for sure. The optimal action plan goes through a first precautionary phase before jumping to a myopic optimum. In the first phase, actions are low and decrease over time because of the irreversibility problem. The Precautionary Principle is here irrelevant. There is no need to regulate a behavior that already is prudent enough.

Under a scenario of Deep Uncertainty, only the distribution of possible tipping points is now known. The optimal feedback rule should a priori determine the current action in terms of two state variables that summarize the system: First the stock of past actions and second, the beliefs on whether the tipping point has been passed or not. We first characterize the dynamics under such circumstances by means of an Hamilton-Jacobi equation with a two-dimensional value function and the associated feedback rule. We then notice that beliefs are highly manipulable in a world where experts and interest groups may have their own incentives. This argument serves to motivate our focus on incomplete feedback rules which are based only on the stock of past actions.

We define and analyze so called Stock-Markov Equilibria, which are sustained with such feedback rules. In those equilibria, the decision-maker can only commit to actions for infinitesimally short periods of time and stick to the equilibrium feedback rule because he expects to continue to do so in the future. We characterize such equilibria by means of a pseudo-value function. This function satisfies a functional equation that generalizes a Hamilton-Jacobi equation but is also forward-looking. We demonstrate that the decision-maker adopts a prudent behavior because of a pseudo-information learning effect. Indeed, as long as no disaster is encountered acting makes it now more likely that the tipping point has been passed anyway.

Yet, we show that the optimal trajectory can be implemented with such a Stock-Markov Equilibrium. Intuitively, the infinitesimally short periods of commitment allow the decision-maker to encapsulate the evolution of beliefs in his decision at any point in time. Even incomplete feedback rules are enough to reconstruct an optimal path of actions with infinitesimal commitments. A contrario, committing to such an incomplete feedback rule once for all, as requested by the Precautionary Principle, is definitvely suboptimal. The pseudo-information learning effect is then exacerbated and actions end up being too cautious. This points at the negative value of the Precautionary Principle.

(joint work with Louise Guillouet).

Jean-Pierre Nadal
Directeur de recherche au CNRS & Directeur d’études à l’EHESS

Directeur du CAMS
Centre d’Analyse et de Mathématique Sociales (CAMS)
École des Hautes Études en Sciences Sociales