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Optimal Credible Warnings

Author

Listed:
  • Koffi Akakpo
  • Marie-Amélie Boucher
  • Vincent Boucher

Abstract

We consider a decision maker who is responsible for issuing fl ood warnings for the population. The population is uncertain about the credibility of the warnings and adjusts its beliefs following false alerts or missed events. We show that low credibility leads the decision maker to issue warnings for lower probabilities of fl ooding. In practice, those probabilities are provided by hydrological forecasts. We therefore use our model to compare welfare under alternative real-world hydrological forecasts. We find that when forecasts include non-realistic extreme scenarios, the economy may remain stuck in a state characterized by many false alerts and poor credibility.

Suggested Citation

  • Koffi Akakpo & Marie-Amélie Boucher & Vincent Boucher, 2018. "Optimal Credible Warnings," Cahiers de recherche 1813, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.
    • Handle: RePEc:lvl:crrecr:1813
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Flood warnings; Renewable resource management; Uncertainty;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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