We define the irreversibility effect and demonstrate its importance in problems involving investmentdecisions under uncertainty. We establish several analytical and numerical resultsthat suggest both that the effect holds more widely than generally recognized, and that anexisting result (Epstein’s Theorem) giving a sufficient condition for determining whether theeffect holds can be applied more widely than previously indicated, in particular to problemsinvolving intertemporally nonseparable benefit functions. We further show that a low elasticityof intertemporal substitution will however result in failure of the effect, but that theeffect will hold if the value of information increases in the degree of flexibility.
W. Michael Hanemann
From Resources Radio: Understanding Climate Models, with Massimo Tavoni of EIEE
Resources Radio: Energy Inefficiency, with RFF's Joshua Blonz
Host Daniel Raimi and Joshua Blonz, a postdoctoral fellow at RFF, talk about his recent research on an energy efficiency program in California, the...
The Welfare Costs of Misaligned Incentives: Energy Inefficiency and the Principal-Agent Problem
I measure the welfare costs of the principal-agent problem in the context of an energy efficiency appliance upgrade program. I find that the principal-agent problem turns an otherwise welfare-increasing program into a welfare-reducing program.