Aggressive Oil Extraction and Precautionary Saving: Coping with Volatility

The effects of stochastic oil demand on optimal oil extraction paths and tax, spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic. Without prudence, optimal oil extraction is governed by the Hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle. Volatile oil demand brings forward oil extraction and induces a bigger government surplus. With prudence, the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward, especially if it has substantial monopoly power on the oil market, gives high priority to the public spending target, is very prudent, and future oil demand has high variance. Uncertain economic prospects induce even higher precautionary saving and, if non]oil revenue shocks and oil revenue shocks are positively correlated, even more aggressive oil extraction. In contrast, prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving, but less so if uncertainty about reserves and oil demand are positively correlated.Hotelling rule, tax smoothing, prudence, vigorous oil extraction, precautionary saving, taxation and under-spending, oil price volatility, uncertain economic prospects and oil reserves

Fear of Model Misspecification and the Robustness Premium

Robust decision making implies welfare costs or robustness premia when the approximating model is the true data generating process. To examine the importance of these premia at the aggregate level we employ a simple two-sector dynamic general equilibrium model with human capital and introduce an additional form of precautionary behavior. The latter arises from the robust decision maker’s ability to reduce the effects of model misspecification through allocating time and existing human capital to this end. We find that the extent of the robustness premia critically depends on the productivity of time relative to that of human capital. When the relative efficiency of time is low, despite transitory welfare costs, there are gains from following robust policies in the long-run. In contrast, high relative productivity of time implies misallocation costs that remain even in the long-run. Finally, depending on the technology used to reduce model uncertainty, we find that while increasing the fear of model misspecification leads to a net increase in precautionary behavior, investment and output can fall.robustness premium, model misspecification, precautionary behavior

Food Safety Management in a Global Environment: The Role of Risk Assessment Models

Quantitative risk assessment models are playing a minor role in the development of the new EU legal framework for food safety. There is a tendency of the EU institutions to apply the precautionary principle versus the predisposition of the USA institutions to rely on risk analysis. This paper provides a comparison of the role played by quantitative risk assessment models in the development of new policies on food safety in the EU and in the USA, focusing on a study case: the supply chain of shell eggs. We suggest that EU regulatory bodies should reconsider the role that quantitative risk assessment models have to play in order to design more effective food safety management systems.Food safety policy, food safety assurance, risk analysis, risk assessment, precautionary principle, Food Consumption/Nutrition/Food Safety,

Precautionary Expertise for GM Crops (PEG): EU Workshop Report

This policy workshop was organised as part of the research project, ‘Precautionary Expertise for GM Crops’ (PEG), funded by the European Commission. The project includes research partners in seven member states (Austria, Denmark, France, Germany, the Netherlands, Spain and UK) and is co-ordinated by the Open University (UK). For regulating GM crops and their food uses, the precautionary principle has been widely accepted in Europe, but its meaning can be contentious. Indeed, it can have diverse meanings. The PEG project is analysing how current European practices – regulatory measures, expert bodies and stakeholder roles – compare with different accounts of the precautionary principle. How do these accounts inform policies and practices regarding GM crops? And how do they facilitate (or impede) efforts to mediate conflicts? From the findings of the research, we will suggest: • how to clarify EU guidelines, so that they better reflect national regulatory measures, and so that decision-making procedures can be publicly accountable and scientifically defensible • how expert bodies could better accommodate public-scientific controversy within their judgements • how national practices could contribute to an EU-level precautionary expertise • how to enhance policy learning about these issues among users of the research findings. To achieve these aims, the project has involved stakeholders and policy-makers at an early stage of the research, in order to ensure that it is policy-relevant and incorporates emerging issues. EU-level advisory panel meetings were held in Brussels in March and September 2002, to consult on the research plan and preliminary results. Advisors were also consulted about how best to structure scenario-analysis exercises for the policy workshops. These workshops were held by national partners in their countries in early 2003. Drawing upon those experiences, the project coordinator organised an EU-level workshop in July 2003. This report discusses the context, background, method, results and implications of that workshop

The precautions of clinical waste: disposable medical sharps in the United Kingdom

This article deals with recent changes in UK guidance on clinical waste, in particular a shift to disposable, single-use instruments and sharps. I use interviews conducted with nurses from a GP practice and two clinical waste managers at alternative treatment and incineration sites as a springboard for reflection on the relationship between the legislation on clinical waste management and its implementation. Scrutinizing the UK guidance, European legislation and World Health Organization principles, I draw out interviewees’ concerns that the changed practices lead to an expansion of the hazardous waste category, with an increased volume going to incineration. This raises questions regarding the regulations’ environmental and health effects, and regarding the precautionary approach embedded in the regulations. Tracing the diverse reverberations of the term ‘waste’ in different points along the journeys made by sharps in particular, and locating these questions in relation to existing literature on waste, I emphasize that public health rationales for the new practices are not made clear in the guidance. I suggest that this relative silence on the subject conceals both the uncertainties regarding the necessity for these means of managing the risks of infectious waste, and the tensions between policies of precautionary public health and environmental sustainability

Fear of model misspecification and the robustness premium

Robust decision making implies welfare costs or robustness premia when the approximating model is the true data generating process. To examine the importance of these premia at the aggregate level we employ a simple two-sector dynamic general equilibrium model with human capital and introduce an additional form of precautionary be- havior. The latter arises from the robust decision maker's ability to reduce the effects of model misspecification through allocating time and existing human capital to this end. We find that the extent of the robustness premia critically depends on the productivity of time rela- tive to that of human capital. When the relative efficiency of time is low, despite transitory welfare costs, there are gains from following ro- bust policies in the long-run. In contrast, high relative productivity of time implies misallocation costs that remain even in the long-run. Fi- nally, depending on the technology used to reduce model uncertainty, we find that while increasing the fear of model misspecification leads to a net increase in precautionary behavior, investment and output can fall.

Épargne de précaution et revenu de travail incertain : un survol de la littérature

Récemment, des progrès marquants ont été réalisés pour comprendre et vérifier le comportement d’épargne de précaution. Cet article passe en revue les déterminants de l’épargne de précaution, l’effet des politiques gouvernementales sur ce type d’épargne, l’importance quantitative de ce comportement ainsi que les tests empiriques.Recently, progresses have been made in understanding and in testing precautionary saving behaviour. This paper surveys the factors determining precautionary saving, the impact of government policies on this type of saving, and the numerical importance as well as the empirical relevance of this behaviour