A Theory of Haste with Applications to Construction of Nuclear Power Plants and Extinction of Endangered Species

CEPR Discussion Paper Series No. 2027

Posted: 13 Jan 1999

See all articles by Isabelle Brocas

Isabelle Brocas

University of Southern California - Department of Economics

Juan D. Carrillo

University of Southern California - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: November 1998

Abstract

We consider the decision of an agent with time inconsistent preferences to undertake an irreversible investment that yields an uncertain current benefit and a delayed cost. We show that, if the flow of information revealed between periods when the investment is postponed is sufficiently high, there is an expected positive information value of waiting. Hence, as under time consistency, only projects with positive Net Present Value (NPV) are initiated. By contrast, if the amount of information transmitted is small, the agent's expected information value of waiting is negative. As a result, an individual may rationally decide to undertake an investment with negative NPV, only to prevent a future investment profitable from a future perspective but highly detrimental from the current viewpoint. We argue that this provides a rationale for haste, i.e. for the tendency of agents to embark on irreversible activities anticipating expected losses. We also discuss some applications of our theory such as impulse buying, destruction of the environment and preservation of endangered species.

JEL Classification: A12, D83, D92, Q20

Suggested Citation

Brocas, Isabelle and Carrillo, Juan D., A Theory of Haste with Applications to Construction of Nuclear Power Plants and Extinction of Endangered Species (November 1998). CEPR Discussion Paper Series No. 2027, Available at SSRN: https://ssrn.com/abstract=142794

Isabelle Brocas

University of Southern California - Department of Economics ( email )

3022 S. Vermont Ave
Los Angeles, CA 90089
United States
213-740-8842 (Phone)
213-740-8543 (Fax)

HOME PAGE: http://www-rcf.usc.edu/~brocas/

Juan D. Carrillo (Contact Author)

University of Southern California - Department of Economics ( email )

3022 S. Vermont Ave.
Los Angeles, CA 90089
United States
213-740-3526 (Phone)
213-740-8543 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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