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Regime shifts and uncertainty in pollution control

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  • de Zeeuw, Aart
  • Zemel, Amos

Abstract

We develop a simple model of managing a system subject to pollution damage, such as climate change, under the risk of an abrupt and random jump in the damage function. The model allows the full dynamic characterization of the optimal emission policies under uncertainty. The results imply precautionary behavior in contrast with the ambiguous outcomes reported in the literature for models of catastrophic occurrences. The framework is used to analyze the adaptation vs. mitigation dilemma and provides a simple criterion to determine when adaptation activities should be undertaken.

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Bibliographic Info

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

Volume (Year): 36 (2012)
Issue (Month): 7 ()
Pages: 939-950

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:7:p:939-950

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

Related research

Keywords: Environmental pollution; Optimal management; Catastrophic transitions; Uncertainty; Adaptation; Mitigation;

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References

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  1. Gjerde, Jon & Grepperud, Sverre & Kverndokk, Snorre, 1999. "Optimal climate policy under the possibility of a catastrophe," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 289-317, August.
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  8. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
  9. Naevdal, Eric, 2006. "Dynamic optimisation in the presence of threshold effects when the location of the threshold is uncertain - with an application to a possible disintegration of the Western Antarctic Ice Sheet," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1131-1158, July.
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Citations

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Cited by:
  1. Lucas Bretschger & Alexandra Vinogradova, 2014. "Growth and Mitigation Policies with Uncertain Climate Damage," CEEES Paper Series CE3S-02/14, European University at St. Petersburg, Department of Economics.
  2. Tol, Richard S.J., 2013. "Targets for global climate policy: An overview," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 911-928.
  3. Rick Van der Ploeg & Aart de Zeeuw, 2013. "Climate Policy and Catastrophic Change: Be Prepared and Avert Risk," Economics Series Working Papers OxCarre Research Paper 11, University of Oxford, Department of Economics.
  4. Frederick van der Ploeg, 2012. "Resource Wars and Confiscation Risk," OxCarre Working Papers 097, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  5. Kapaun, Ute & Quaas, Martin F., 2012. "Does the optimal size of a fish stock increase with environmental uncertainties?," Economics Working Papers 2012-09, Christian-Albrechts-University of Kiel, Department of Economics.
  6. Derek Lemoine & Christian Traeger, 2014. "Watch Your Step: Optimal Policy in a Tipping Climate," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 137-66, February.
  7. Edilio Valentini & Paolo Vitale, 2014. "Optimal Climate Policy for a Pessimistic Social Planner," Working Papers 2014.33, Fondazione Eni Enrico Mattei.
  8. Frederick van der Ploeg, 2014. "Abrupt Positive Feedback and the Social Cost of Carbon," OxCarre Working Papers 122, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  9. Rick van der Ploeg, 2012. "Breakthrough Renewables and the Green Paradox," CESifo Working Paper Series 3986, CESifo Group Munich.
  10. Ren, Bijie & Polasky, Stephen, 2014. "The optimal management of renewable resources under the risk of potential regime shift," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 195-212.
  11. de Frutos Cachorro, Julia & Erdlenbruch, Katrin & Tidball, Mabel, 2014. "Optimal adaptation strategies to face shocks on groundwater resources," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 134-153.

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