Catastrophes, delays, and learning

Abstract

How to plan for catastrophes that may be under way? In a simple but general model of experimentation, a decision-maker chooses a flow variable contributing to a stock that may trigger a catastrophe at each untried level. Once triggered, the catastrophe itself occurs only after a stochastic delay. Consequently, the rhythm of past experimentations determines the arrival of information. This has strong implications for policies in situations where the planner inherits a history of experiments, like climate change and pandemic crisis. The structure encompasses canonical approaches in the literature.

Keywords

JEL codes

Reference

Matti Liski, and François Salanié, “Catastrophes, delays, and learning”, TSE Working Paper, n. 20-1148, September 2020.