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Natural capital investment under knightian uncertainty

Published online by Cambridge University Press:  02 January 2014

Takao Asano  and
Akihisa Shibata
Takao Asano
Affiliation:
Faculty of Economics, Okayama University, 3-1-1 Tsushimanaka, Kita-ku, Okayama 700-8530, Japan. E-mail: asano@e.okayama-u.ac.jp.
Akihisa Shibata
Affiliation:
Institute of Economic Research, Kyoto University, Japan. E-mail: shibata@kier.kyoto-u.ac.jp.
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Abstract

In this paper, we develop a simple two-period model of natural capital investment under Knightian uncertainty and analyze the effects of changes in the degree of ambiguity on the optimal natural capital investment. We find that the degree of Knightian uncertainty affects a government's natural capital investment. Moreover, we find that the direction of the effect of the Knightian uncertainty depends on the nature of uncertainty, that is, on whether the uncertainty is about the future level of natural capital or about the return from saving.

Type
Research Article
Information
Environment and Development Economics , Volume 19 , Issue 5 , October 2014 , pp. 529 - 547
Copyright
Copyright © Cambridge University Press 2014 

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