Quantifying type I and type II errors in decision-making under uncertainty: the case of GM crops
- 391 Downloads
In a recent paper, Hennessy and Moschini (American Journal of Agricultural Economics 88(2): 308–323, 2006) analyse the interactions between scientific uncertainty and costly regulatory actions. We use their model to analyse the costs of making type I and type II errors, in the context of the possible introduction of GM crops. We demonstrate that the costs of making a type I or type II error should be calculated as the difference in costs between choosing the right action immediately and choosing the right action only after the state of nature has been revealed. The importance of this result for the discussion on the precautionary principle is briefly examined.
KeywordsType I and type II errors Uncertainty Irreversibility GM crops
JEL ClassificationD81 Q16
- Dixit, A.K., Pindyck, R.S.: Investment under Uncertainty. Princeton University Press, Princeton (1994) Google Scholar
- Ervin, D.E., Welsh, R.: Environmental effects of genetically modified crops: differentiated risk assessment and management. In: Wesseler, J.H.H. (ed.) Environmental Costs and Benefits of Transgenic Crops. Springer, Dordrecht (2005) Google Scholar