Policy Design as an Irreversible Investment Under Uncertainty: Norwegian Agriculture and the WTO

This paper is concerned with the timing of an agricultural policy reform under uncertainty. The focus is on the opportunity cost of giving up the option to wait when implementing a policy reform. Including the option value in applied policy analysis can help explain why conventional analyses may find observed policies to be Pareto-inferior. Furthermore, it explains why otherwise profitable policy reforms may be delayed. The theoretical model is applied to Norwegian agricultural policy anticipating a prospective WTO agreement. It is argued that the option value should be incorporated into applied policy analysis when high uncertainty prevails.


Issue Date:
2002
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/24875
Total Pages:
16
JEL Codes:
C61; D78
Series Statement:
Contributed Paper




 Record created 2017-04-01, last modified 2017-04-26

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