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Abstract
A lack of awareness and understanding of risk and uncertainty can lead to poor
decision making and higher costs for policy providers, as not accounting for them
may produce policy which is inflexible and with a negative effect on welfare. Further,
misunderstanding of and/or failure to account for risk and uncertainty can inhibit
research and development for policy to which environmental economics can
contribute (for example, in developing effective measures of sustainability). The aim
of this project is to develop guidelines for ‘Best Practice’ approaches to risk and
uncertainty in environmental economics for guiding policy development and
implementation, taking into account key issues such as costs, irreversibility,
adaptation and dynamics. These guidelines are developed by examining the
frameworks commonly used by environmental economists to account for risk and
uncertainty (such as the Precautionary Principle and Cost Benefit Analysis) as well
as specifically developed theories (e.g. Quiggin’s Rank Dependent Utility Theory),
borrowing from other disciplines (e.g. Prospect Theory) and drawing attention to
lesser known ideas (e.g. Shackle’s Model).