Voluntary Contributions with Uncertainty: The Environmental Quality

This article presents a model in which production causes pollution that diminishes the welfare of its agents. Each agent is concerned with the quality of its environment and may voluntary contribute to improve it by financing depollution technology. The effectiveness of this technology on the quality of the environment is uncertain. We show that if an agent is sufficiently risk averse, voluntary contribution is a decreasing function of the average efficiency of depollution technology. If, on the contrary, the pollution effect is weaker than the substitution effect, the opposite holds. We show that precaution about environmental quality has two possible consequences that depend on agents' risk aversion. Therefore, the implications of a precautionary attitude lead us to consider the agents' risk-aversion characterization, which implies knowledge about prudent attitude.