Highlights We model the government's minimum requirement regulation and subsidy policy of port adaptation investment to mitigate damage caused by climate change-related disasters The ambiguity of disaster occurrence probability, decision maker's attitudes towards risk and adaptation's spill-over externality are explicitly modelled. Subsidy policy dominates the minimum requirement regulation in terms of the equilibrium social welfare in most cases. Degree of ambiguity changes the optimal designs of minimum requirement regulation and subsidy policy, but does not change their relative ranking qualitatively. Higher degrees of pessimism make the government more reluctant to intervene in the ports’ adaptation, and less likely to impose the two regulatory policies.

    Abstract This paper models two commonly adopted regulatory polices (the minimum requirement regulation vs. subsidy) on port adaptation investment to mitigate the damage caused by climate change-related disasters. The ambiguity of the disaster occurrence probability and the decision makers’ attitudes towards risk are explicitly modelled. It is found, under the minimum requirement regulation, ports balance the option of increasing their adaptation vs. reducing their economic activities. In comparison, subsidies promote adaptation without introducing any incentive for ports to reduce outputs, but they can be less efficient than minimum requirement regulations in addressing market failures, such as that caused by a spill-over externality. The ambiguity of disasters changes the optimal designs of minimum requirement regulation and subsidy policy but does not change their relative ranking qualitatively. Decision makers’ risk attitudes also play important roles. Higher degrees of pessimism (more risk aversion) lead to lower port outputs but can also increase the level of port adaptation to achieve full insurance against disaster loss. Higher degrees of pessimism also make the government more conservative to intervene in the ports’ adaptation and thus less likely to impose the two regulatory policies. Our analysis also explains why it is justified for the government to withhold intervention under ambiguity, and also shows that the ambiguity does not necessarily bring worse expected social welfare.


    Access

    Check access

    Check availability in my library

    Order at Subito €


    Export, share and cite



    Title :

    Subsidy or minimum requirement? Regulation of port adaptation investment under disaster ambiguity


    Contributors:
    Zheng, Shiyuan (author) / Wang, Kun (author) / Li, Zhi-Chun (author) / Fu, Xiaowen (author) / Chan, Felix T.S. (author)


    Publication date :

    2021-04-14


    Size :

    25 pages




    Type of media :

    Article (Journal)


    Type of material :

    Electronic Resource


    Language :

    English




    Subsidy on transport adaptation investment-modeling decisions under incomplete information and ambiguity

    Zheng, Shiyuan / Wang, Kun / Chan, Felix T.S. et al. | Elsevier | 2022



    Assessment of the Minimum Speed Requirement in Safe Return to Port

    Grin, Rob / Meij, Rien de / Rapuc, Stephane | TIBKAT | 2019


    Investment competition on dedicated terminals under demand ambiguity

    Zheng, Shiyuan / Jiang, Changmin / Fu, Xiaowen | Elsevier | 2021