Optimal Credible Warnings

CRREP working paper series 2018-13

29 Pages Posted: 21 Aug 2018

See all articles by Koffi Akakpo

Koffi Akakpo

Université Laval - Département d'Économique

Marie-Amélie Boucher

Université de Sherbrooke

Vincent Boucher

Université Laval

Date Written: July 1, 2018

Abstract

We consider a decision maker who is responsible for issuing flood 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 flooding. In practice, those probabilities are provided by hydrological forecasts. We therefore use our model to compare welfare under alternative real-world hydro- logical 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.

Keywords: Flood warnings, Renewable resource management, Uncertainty

JEL Classification: D81, Q28, C61

Suggested Citation

Akakpo, Koffi and Boucher, Marie-Amélie and Boucher, Vincent, Optimal Credible Warnings (July 1, 2018). CRREP working paper series 2018-13. Available at SSRN: https://ssrn.com/abstract=3218439 or http://dx.doi.org/10.2139/ssrn.3218439

Koffi Akakpo (Contact Author)

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada

Marie-Amélie Boucher

Université de Sherbrooke ( email )

2500 bd de l'Universite
Sherbrooke, Québec J1K 2R1
Canada

Vincent Boucher

Université Laval ( email )

2214 Pavillon J-A. DeSeve
Quebec, Quebec G1K 7P4
Canada

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