Policy Shift from Optimization to Prevention due to Tipping Points

Applying Prudential Policies to the Arctic Sea Ice Model

The Paris Agreement as an Example of a Guardrail Policy

Economist's Role in Designing Cost-Effective Guardrail Policies

Consequences of Lacking Guardrail Policies on Climate Stability

A government is considering how to respond to a newly discovered environmental risk. Scientific models are highly uncertain, but they indicate a small possibility of a catastrophic, irreversible collapse of a vital ecosystem. The most effective preventative measures are extremely costly and would significantly reduce short-term economic prosperity. Which of the following policy decisions best reflects a 'guardrail' or 'prudential' approach?

When faced with a potential but uncertain catastrophic outcome, a policymaker using a prudential approach would focus on precisely quantifying the probabilities and expected monetary damages to find the most economically efficient solution.

Policy Response to Systemic Financial Risk

Appropriate Use of Guardrail Policies