The irreversibility effect in environmental decisionmaking |
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Authors: | Urvashi Narain Michael Hanemann Anthony Fisher |
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Institution: | (1) Resources for the Future, 1616 P Street NW, Washington, DC 20036, USA;(2) Department of Agricultural and Resource Economics, University of California, Berkeley, CA 94720, USA |
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Abstract: | We provide a new, more general, definition for the irreversibility effect and demonstrate its relevance to problems involving
environmental and other decisions under uncertainty. We establish several analytical and numerical results that suggest both
that the effect holds more widely than generally recognized, and that an existing result (Epstein’s Theorem), giving a sufficient
condition for determining whether the effect holds, can be applied more widely than previously indicated, in particular to
problems involving intertemporally nonseparable benefit functions. We further show that a low elasticity of intertemporal
substitution will however result in failure of the effect.
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Keywords: | Decision making under uncertainty Irreversibility effect Necessary and sufficient conditions Nonseparable benefit functions |
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