Published December 2, 2025 | Version v1
Journal article

Stochastic responses and marginal valuation

  • 1. University of Chicago

Description

The analysis of policy impacts in a dynamic and uncertain reality is vital to supporting informed economic policy design and implementation. Dynamic, stochastic economic models used in policy evaluation necessarily simplify the world as we know it. This motivates us to explore, refine, and extend tools aimed at producing marginal valuations that shed light on why some policies are optimal and how others, though suboptimal, can be improved. We present representations of these marginal valuations that embrace uncertainty and support robust implementation-even in environments characterized by "deep uncertainties." These representations offer a more complete understanding of how interactions among multiple state variables, concerns about model misspecification, and uncertainties surrounding potentially long-term implications contribute to the cogent assessment of policies. We argue that these methods are particularly salient for evaluating the global cost of climate change and the global value of research and development with long-term prospects for success.

Data availability

There are no data underlying this work.

Additional details

Identifiers

DOI
10.1073/pnas.2520857122
Other
oai:uchicago.tind.io:16664

Funding

U.S. National Science Foundation
DMS-2153822
Office of Naval Research
N000141712095
United States Air Force Office of Scientific Research
FA9550-18-1-0494

UChicago Information

Division(s)
Booth School of Business, Physical Sciences Division
Department(s)
Econometrics and Statistics, Kenneth C. Griffin Department of Economics, Mathematics