Information Acquisition under Fundamental Uncertainty - Precaution, Research, and the Environment

• Applicant: Professor Timo Goeschl, Ph.D.
• Subject Area: Economic Policy, Applied Economics
• Term: from 2013 to 2017
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 229957325

A significant part of modern regulatory decisions concern the regulation of technologies about which experiential knowledge offers little guidance. In such settings of fundamental uncertainty (ambiguity), the regulator, for example the Environmental Protection Agency, needs to make two decisions. One is about the level of active effort to learn more about the technology before regulation. The other is the regulation of its use given the remaining uncertainty that the regulator faces after learning. At present, the literature offers guidance either on active learning by a regulator when the regulation only involves risk rather than uncertainty or on regulatory decisions under ambiguity without active learning. However, the literature offers no guidance on the motivating policy problem which involves active learning in settings of fundamental uncertainty. The objective of this research is to develop the theoretical underpinnings of a suitable framework and thereby close this knowledge gap. The project is on schedule. Building blocks from the literature have for the first time been combined into a tractable framework of active learning under ambiguity. This has been used to make a contribution to the literature on regulation. The objective of the 6 month extension sought is to complete the research project, but adjusted for new developments. The additional time would give the opportunity to apply the findings of the first 24 months to the regulation literature and, through that, close the circle of research steps envisioned in the original proposal. This closure is particularly compelling in light of the fact that the results so far justify our initial confidence that our analysis of different institutional set-ups will be relevant and technically feasible. The short extension will ensure that the findings can be made fruitful for actual regulatory practice. The focus is on the decision of the outside body that draws up the mandate for the regulatory body that we study. This outside body has an institutional choice, namely on how strongly to connect or separate the two tasks of information acquisition and regulation. The tasks could be combined into one institution or given to distinct institutions, or separate mandates for each task could be codified. In practice, we observe different countries using very different approaches in this choice. The institutional choice is the focus of the research proposed and the core of its contribution to the literature on institutional regulatory arrangements. In particular, the objectives of the research proposed are (1) to map existing regulatory examples that meet the relevant criteria, fundamental uncertainty and the option of the regulator to undertake research, to our framework; and (2) to modify the existing framework to understand the implications different institutional arrangements would have on information acquisition behavior with a view to developing testable hypotheses.

• DFG Programme: Research Grants