Safe Minimum Standards in Dynamic Resource Problems—Conditions for Living on the Edge of Risk

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Date

April 1, 2004

Authors

Michael Margolis and Eric Naevdal

Publication

Working Paper

Reading time

1 minute
AbstractSafe Minimum Standards (SMSs) have been advocated as a policy rule for environmental problems where uncertainty about risks and consequences are thought to be profound. This paper explores the rationale for such a policy within a dynamic framework and derives conditions for when SMS can be summarily dismissed as a policy choice and for when SMS can be defended as an optimal policy based on standard economic criteria. We have determined that these conditions can be checked with quite limited information about damages and risks. In order to analyze the SMSs in a dynamic setting, we have developed a method for solving optimal control problems where the state space is divided into risky and non-risky subsets.

Authors

Michael Margolis

Eric Naevdal

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