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EKC-type transitions and environmental policy under pollutant uncertainty and cost irreversibility

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  • Kijima, Masaaki
  • Nishide, Katsumasa
  • Ohyama, Atsuyuki

Abstract

Previous studies have suggested that some pollutant levels first increases due to the economic growth and then start decreasing, the pattern being called the "environmental Kuznets curve" (EKC). We examine EKC-type transitions of pollutant levels not with respect to economic growth but more generally in time. Assuming that each policy maker optimally executes the two switching options of regulation and unregulation for pollution, the switching dynamics of environmental policy can be described by an alternating renewal process. It is shown that the double Laplace transform of transition density of a pollutant level can be obtained by a novel application of renewal theory. The expected level of overall pollutants is then calculated numerically and found to exhibit either a [Lambda][hyphen (true graphic)]shaped or an N-shaped pattern in time. Our results present a simple explanation for the EKC-type transitions of pollutant levels within a real options framework.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 5 (May)
Pages: 746-763

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:5:p:746-763

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Environmental Kuznets curve Real option Alternating renewal process Double Laplace transform;

References

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  17. Kijima, Masaaki & Nishide, Katsumasa & Ohyama, Atsuyuki, 2010. "Economic models for the environmental Kuznets curve: A survey," Journal of Economic Dynamics and Control, Elsevier, vol. 34(7), pages 1187-1201, July.
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Citations

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Cited by:
  1. Esteve, Vicente & Tamarit, Cecilio, 2012. "Threshold cointegration and nonlinear adjustment between CO2 and income: The Environmental Kuznets Curve in Spain, 1857–2007," Energy Economics, Elsevier, vol. 34(6), pages 2148-2156.
  2. Diallo, Ibrahima Amadou, 2014. "The environmental Kuznets curve in a public spending model of economic growth," MPRA Paper 56528, University Library of Munich, Germany.
  3. Fernández, Esther & Pérez, Rafaela & Ruiz, Jesús, 2012. "The environmental Kuznets curve and equilibrium indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 36(11), pages 1700-1717.
  4. Esteve, Vicente & Tamarit, Cecilio, 2012. "Is there an environmental Kuznets curve for Spain? Fresh evidence from old data," Economic Modelling, Elsevier, vol. 29(6), pages 2696-2703.
  5. Kijima, Masaaki & Nishide, Katsumasa & Ohyama, Atsuyuki, 2010. "Economic models for the environmental Kuznets curve: A survey," Journal of Economic Dynamics and Control, Elsevier, vol. 34(7), pages 1187-1201, July.

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