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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. Ploeg, F. van der & Zeeuw, A.J. de, 1992. "International aspects of pollution control," Open Access publications from Tilburg University urn:nbn:nl:ui:12-377516, Tilburg University.
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  4. Zmarak Shalizi & Franck Lecocq, 2010. "To Mitigate or to Adapt: Is that the Question? Observations on an Appropriate Response to the Climate Change Challenge to Development Strategies," World Bank Research Observer, World Bank Group, World Bank Group, vol. 25(2), pages 295-321, August.
  5. Eric Nævdal, 2003. "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," Working Papers 143, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
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  10. Weitzman, Martin L., 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," Scholarly Articles 3693423, Harvard University Department of Economics.
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  13. Brozovic, Nicholas & Schlenker, Wolfram, 2011. "Optimal management of an ecosystem with an unknown threshold," Ecological Economics, Elsevier, vol. 70(4), pages 627-640, February.
  14. Yacov Tsur & Amos Zemel, 2009. "Endogenous Discounting and Climate Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 44(4), pages 507-520, December.
  15. Tsur, Yacov & Zemel, Amos, 2001. "The infinite horizon dynamic optimization problem revisited: A simple method to determine equilibrium states," European Journal of Operational Research, Elsevier, Elsevier, vol. 131(3), pages 482-490, June.
  16. Bruno Nkuiya, 2011. "International Emission Strategies under the Threat of a Sudden Jump in Damages," Cahiers de recherche CREATE 2011-1, CREATE.
  17. Gollier, Christian & Treich, Nicolas, 2003. " Decision-Making under Scientific Uncertainty: The Economics of the Precautionary Principle," Journal of Risk and Uncertainty, Springer, vol. 27(1), pages 77-103, August.
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Citations

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Cited by:
  1. Frederick van der Ploeg, 2012. "Resource Wars and Confiscation Risk," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 097, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Richard S.J. Tol, 2012. "Targets for Global Climate Policy: An Overview," Working Paper Series 3712, Department of Economics, University of Sussex.
  3. 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, Elsevier, vol. 40(C), pages 134-153.
  4. Frederick van der Ploeg & Aart de Zeeuw, 2013. "CLIMATE POLICY AND CATASTROPHIC CHANGE: Be Prepared and Avert Risk," CEEES Paper Series CE3S-02/13, European University at St. Petersburg, Department of Economics.
  5. Rick van der Ploeg, 2012. "Breakthrough Renewables and the Green Paradox," CESifo Working Paper Series 3986, CESifo Group Munich.
  6. Edilio Valentini & Paolo Vitale, 2014. "Optimal Climate Policy for a Pessimistic Social Planner," Working Papers 2014.33, Fondazione Eni Enrico Mattei.
  7. Rick Van der Ploeg, 2013. "Abrupt Positive Feedback and the Social Cost of Carbon," Economics Series Working Papers OxCarre Research Paper 12, University of Oxford, Department of Economics.
  8. 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, Elsevier, vol. 40(C), pages 195-212.
  9. Ute Kapaun & Martin Quaas, 2013. "Does the Optimal Size of a Fish Stock Increase with Environmental Uncertainties?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 54(2), pages 293-310, February.
  10. 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.
  11. 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.

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