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Uncertainty in environmental economics: The problem of entropy and model choice

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  • Halkos, George
  • Kitsos, Christos

Abstract

In this paper the appropriate background in mathematics and statistics is considered in developing methods to investigate the uncertainty problem associated with environmental economics. A new generalized measure of uncertainty is introduced and a number of sources of uncertainty are discussed and presented. The causes of uncertainty are recognized and an examination is made of how they affect the adopted policies and how important their management is in any decision-making process, either under the introduced generalized normal distribution or the model choice. We show that mathematical models formulate the problem and statistical models offer possible solutions, restricting the underlying uncertainty, given the model and the error assumptions are correct. The mathematical approach can be adopted using environmental economics problems by paying attention to model choice uncertainty. As uncertainty is always present, we discuss both the model choice uncertainty and the generalized normal distribution uncertainty, through new entropy measures.

Suggested Citation

  • Halkos, George & Kitsos, Christos, 2018. "Uncertainty in environmental economics: The problem of entropy and model choice," Economic Analysis and Policy, Elsevier, vol. 60(C), pages 127-140.
    • Handle: RePEc:eee:ecanpo:v:60:y:2018:i:c:p:127-140
    DOI: 10.1016/j.eap.2018.09.004
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    References listed on IDEAS

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    1. Halkos, George E. & Tsilika, Kyriaki D., 2017. "Climate change effects and their interactions: An analysis aiming at policy implications," Economic Analysis and Policy, Elsevier, vol. 53(C), pages 140-146.
    2. Quiggin, John, 2008. "Uncertainty and Climate Change Policy," Economic Analysis and Policy, Elsevier, vol. 38(2), pages 203-210, September.
    3. George E. Halkos & Dimitra C. Kitsou, 2015. "Uncertainty in optimal pollution levels: modelling and evaluating the benefit area," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 58(4), pages 678-700, April.
    4. George E. HALKOS & George J. PAPAGEORGIOU, 2016. "Dynamical Methods Applied in Natural Resource Economics," Journal of Economics and Political Economy, KSP Journals, vol. 3(1), pages 12-31, March.
    5. Halkos, George & Papageorgiou, George, 2008. "Extraction of non-renewable resources: a differential game approach," MPRA Paper 37596, University Library of Munich, Germany.
    6. Managi, Shunsuke & Guan, Dabo, 2017. "Multiple disasters management: Lessons from the Fukushima triple events," Economic Analysis and Policy, Elsevier, vol. 53(C), pages 114-122.
    7. George E. Halkos & Dimitra C. Kitsou, 2018. "Weighted location differential tax in environmental problems," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(1), pages 1-15, January.
    8. George Halkos & Christos Kitsos, 2005. "Optimal pollution level: a theoretical identification," Applied Economics, Taylor & Francis Journals, vol. 37(13), pages 1475-1483.
    9. George Halkos, 1994. "Optimal abatement of sulphur emissions in Europe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(2), pages 127-150, April.
    10. Morikawa, Masayuki, 2016. "How uncertain are economic policies? New evidence from a firm survey," Economic Analysis and Policy, Elsevier, vol. 52(C), pages 114-122.
    11. George Halkos, 1996. "Incomplete information in the acid rain game," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(2), pages 129-148, June.
    12. Hutton, J P & Halkos, G E, 1995. "Optimal acid rain abatement policy for Europe: An analysis for the year 2000," Energy Economics, Elsevier, vol. 17(4), pages 259-275, October.
    13. Halkos, George E., 1993. "Sulphur abatement policy: Implications of cost differentials," Energy Policy, Elsevier, vol. 21(10), pages 1035-1043, October.
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    Cited by:

    1. Halkos, George & Kitsos, Christos, 2024. "Measuring uncertainty, transfer entropy and G-causality In Environmental Economics," MPRA Paper 121764, University Library of Munich, Germany.

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    More about this item

    Keywords

    Uncertainty; Environmental economics; Entropy; Model;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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