Averting Catastrophe by Cass R. Sunstein
Author:Cass R. Sunstein [Sunstein, Cass R.]
Language: eng
Format: epub
Options, Imperfect Knowledge, and Precautions
It should now be clear that the idea of option value might help support the Irreversible Harm Precautionary Principle. The seminal essay was written by Kenneth Arrow and Anthony Fisher, who demonstrate that the ideas of uncertainty and irreversibility have considerable importance to the theory of environmental protection; their claims have implications for regulation (and life) in general.22 Arrow and Fisher imagine that the question is whether to preserve a virgin redwood forest for wilderness recreation or instead to open it to clear-cut logging. Assume that if the development option is chosen, the destruction of the forest is effectively irreversible. Arrow and Fisher argue that it matters whether the authorities cannot yet assess the costs or benefits of a proposed development. If development produces âsome irreversible transformation of the environment, hence a loss in perpetuity of the benefits from preservation,â then it is worth paying something to wait to acquire the missing information. Their suggestion is that âthe expected benefits of an irreversible decision should be adjusted to reflect the loss of options it entails.â23
Fisher has generalized this argument to suggest that â[w]here a decision problem is characterized by (1) uncertainty about future costs and benefits of the alternatives, (2) prospects for resolving or reducing the uncertainty with the passage of time, and (3) irreversibility of one or more of the alternatives, an extra value, an option value, properly attaches to the reversible alternative(s).â24 The intuition here is both straightforward and appealing: More steps should be taken to prevent harms that are effectively final than to prevent those that can be reversed at some cost. If an irreversible harm is on one side and a reversible one on the other, and if decision makers are uncertain25 about future costs and benefits of precautions, an understanding of option value suggests that it is worthwhile to spend a certain amount to preserve future flexibility, by paying a premium to avoid the irreversible harm.
Writing in 2004, Judge Richard Posner made a point of this sort as a justification for taking aggressive steps to combat climate change.26 Posner acknowledged that the size of the threat of climate change was disputed (as it certainly was in 2004, and remains today), and hence it is tempting to wait to regulate until we have more information. But there is a serious problem with waiting, which is âthe practically irreversible effect of greenhouse-gas emissions on the atmospheric concentration of those gases.â27 Thus Posner reasoned that making aggressive âcuts now can be thought of as purchasing an option to enable global warming to be stopped or slowed at some future time at a lower cost.â28 The reduction in cost, as a result of current steps, could result from lowering current emissions or simply from increasing the rate of technological innovations that make pollution reduction less costly in the future. Posner concluded that the option approach makes sense for other catastrophic risks as well, including those associated with genetically modified crops.
The general point here is that,
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