The value of perfect information : application to the uncertain time lag of benefits from abatement in the Baltic Sea

Sammanfattning: Eutrophication from nitrogen and phosphorus has damaged the Baltic Sea, leaving large sea bottom areas without biological life, thus changing the marine ecosystem, and triggering the growth of toxic algae. Despite efforts to curb this pollution, the sea remains eutrophic. We argue that eutrophication management is subject to both uncertainty and irreversibility, and hence could explain why impacted countries may not be willing to enforce load reduction targets. This thesis focuses on the time lag of benefits following nitrogen abatement. The time taken for concentration levels to decrease after abatement is uncertain, leading to uncertain benefits. Using the quasi option value model, we calculate the value of learning this information, and thus find that removing this uncertainty is worth over 8.6 billion EUR, to all bordering countries. This could be of significant importance for actors rationally waiting for more information, before implementing expensive and irreversible policy.