Environmental Uncertainties and Prevention: the Role of Ambiguity Aversion

Environmental quality evolution and environmental policy involve uncertainties in various dimensions. These uncertainties can often not be represented by a unique, probabilistic belief and thus standard expected utility preferences representation models can not be used for the determination of optimal mitigation and adaptation decisions. Several alternatives for the expected utility model have been proposed in the literature. The aim of this paper is to determine the optimal adaptation and mitigation levels when future environmental quality and the efficiency of adaptation are ambiguous. We consider three models of preferences representation under ambiguity: the smooth ambiguity model, the α MaxMin model and the neo-additive capacities model. Hopefully, our results are quite robust to the model chosen. Ambiguity aversion drives the decision maker to undertake the economic instrument that involves less ambiguity.