Some Remarks on Policy Making under Model Uncertainty

22 Pages Posted: 23 Mar 2009 Last revised: 22 Mar 2017

See all articles by Pauline M. Barrieu

Pauline M. Barrieu

London School of Economics & Political Science (LSE)

Bernard Sinclair-Desgagne

SKEMA Business School - Sophia Antipolis Campus

Date Written: March 20, 2017

Abstract

Policy makers must often cope with circumstances where there is no consensual scientific model of the matter under consideration. We formally represent this situation as one of handling a robust optimization problem. This provides a framework to rigorously compare some commonly used approaches to deal with model undertainty (namely: model averaging, robust control, ambiguity aversion, and voting), as these approaches turn out to be specific dual versions of such an optimization problem. The framework also suggests an economically intuitive way to seek and characterize optimal policies, and reveals generic properties of policy decisions.

Keywords: Model Uncertainty; Ambiguity; Robust Optimization; General Duality; Willingness-to-Accept (WTA) and Willingness-to-Pay (WTP)

JEL Classification: D81, C61, D61, Q51

Suggested Citation

Barrieu, Pauline M. and Sinclair-Desgagne, Bernard, Some Remarks on Policy Making under Model Uncertainty (March 20, 2017). CIRANO - Scientific Publications Forthcoming. Available at SSRN: https://ssrn.com/abstract=1366989 or http://dx.doi.org/10.2139/ssrn.1366989

Pauline M. Barrieu

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://stats.lse.ac.uk/barrieu/

Bernard Sinclair-Desgagne (Contact Author)

SKEMA Business School - Sophia Antipolis Campus ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

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