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Safe Minimum Standards in Dynamic Resource Problems: Conditions for Living on the Edge of Risk

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  • Michael Margolis
  • Eric Nævdal

Abstract

Safe Minimum Standards (SMSs) have been advocated as a policy rule for environmental problems where uncertainty about risks and consequences are thought to be profound. This paper explores the rationale for such a policy within a dynamic framework and derives conditions for when SMSs can be summarily dismissed as a policy choice and for when SMSs can be defended as an optimal policy based on standard economic criteria. We have determined that these conditions can be checked with quite limited information about damages and risks. In order to analyze the SMSs in a dynamic setting, we have developed a method for solving optimal control problems where the state space is divided into risky and non-risky subsets.
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Suggested Citation

  • Michael Margolis & Eric Nævdal, 2008. "Safe Minimum Standards in Dynamic Resource Problems: Conditions for Living on the Edge of Risk," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(3), pages 401-423, July.
    • Handle: RePEc:kap:enreec:v:40:y:2008:i:3:p:401-423
    DOI: 10.1007/s10640-007-9162-z
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    Cited by:

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    2. Anne‐Sophie Crépin & Eric Nævdal, 2020. "Inertia Risk: Improving Economic Models of Catastrophes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(4), pages 1259-1285, October.
    3. Grijalva, Therese & Berrens, Robert P. & Shaw, W. Douglass, 2011. "Species preservation versus development: An experimental investigation under uncertainty," Ecological Economics, Elsevier, vol. 70(5), pages 995-1005, March.
    4. Galaz, V. & de Zeeuw, Aart & Shiroyama, Hideaki & Tripley, Debbie, 2016. "Planetary boundaries : Governing emerging risks and opportunities," Other publications TiSEM 0aebe291-f890-4a2d-9ab7-d, Tilburg University, School of Economics and Management.
    5. Schmidt, Stefan & Seppelt, Ralf, 2018. "Information content of global ecosystem service databases and their suitability for decision advice," Ecosystem Services, Elsevier, vol. 32(PA), pages 22-40.
    6. Daniel H. Cole, 2007. "The Stern Review and its critics: implications for the theory and practice of costs-benefits analysis," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 4, November.
    7. Shaw, W. Douglass & Woodward, Richard T., 2010. "Water Management, Risk, and Uncertainty: Things We Wish We Knew in the 21st Century," Western Economics Forum, Western Agricultural Economics Association, vol. 9(2), pages 1-15.
    8. Nævdal, Eric, 2015. "Catastrophes and Expected Marginal Utility – How The Value Of The Last Fish In A Lake Is Infinity And Why We Shouldn't Care (Much)," Memorandum 08/2015, Oslo University, Department of Economics.
    9. Sanga, G.J. & Mungatana, E.D., 2016. "Integrating ecology and economics in understanding responses in securing land-use externalities internalization in water catchments," Ecological Economics, Elsevier, vol. 121(C), pages 28-39.
    10. Randall, Alan, 2009. "We Already Have Risk Management - Do We Really Need the Precautionary Principle?," International Review of Environmental and Resource Economics, now publishers, vol. 3(1), pages 39-74, August.
    11. Alan Randall, 2014. "Weak sustainability, conservation and precaution," Chapters, in: Giles Atkinson & Simon Dietz & Eric Neumayer & Matthew Agarwala (ed.), Handbook of Sustainable Development, chapter 10, pages 160-172, Edward Elgar Publishing.
    12. Thomas S. Lontzek & Daiju Narita & Ole Wilms, 2016. "Stochastic Integrated Assessment of Ecosystem Tipping Risk," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(3), pages 573-598, November.

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    More about this item

    Keywords

    Safe Minimum Standards; Optimal control; Critical zone; Threshold effects; Mixed risk spaces; C61; Q20; Q30;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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