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Pollution control with uncertain stock dynamics: When, and how, to be precautious

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  • Athanassoglou, Stergios
  • Xepapadeas, Anastasios

Abstract

The precautionary principle (PP) applied to environmental policy stipulates that, in the presence of uncertainty, society must take robust preventive action to guard against worst-case outcomes. It follows that the higher the degree of uncertainty, the more aggressive this preventive action should be. This normative maxim is explored in the case of a stylized dynamic model of pollution control with uncertain (in the Knightian sense) stock dynamics, using the robust control framework of Hansen and Sargent [12]. Optimal investment in damage control is found to be increasing in the degree of uncertainty, thus confirming the conventional PP wisdom. Optimal mitigation decisions, however, need not always comport with the PP. In particular, when damage-control investment is both sufficiently cheap and sensitive to changes in uncertainty, damage-control investment and mitigation may act as substitutes and a PP with respect to the latter can be unambiguously irrational. The theoretical results are applied to a calibrated linear-quadratic model of climate change. The analysis suggests that a reversal of the PP with respect to mitigation, while theoretically possible, is very unlikely.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 63 (2012)
Issue (Month): 3 ()
Pages: 304-320

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Handle: RePEc:eee:jeeman:v:63:y:2012:i:3:p:304-320

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Knightian uncertainty; Robust control; Precautionary principle; Pollution control; Stock dynamics;

References

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Citations

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Cited by:
  1. Konstantinos Angelopoulos & George Economides & Apostolis Philippopoulos, 2012. "Public Good Provision with Robust Decision Making," CESifo Working Paper Series, CESifo Group Munich 3996, CESifo Group Munich.
  2. Hassan Benchekroun & Farnaz Taherkhani, 2013. "Adaptation and the Allocation of Pollution Reduction Costs," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 03-2013, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  3. Amigues, Jean-Pierre & Moreaux, Michel, 2012. "Potential Irreversible Catastrophic Shifts of the Assimilative Capacity of the Environment," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 697, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Athanassoglou, Stergios & Bosetti, Valentina, 2012. "Setting environmental policy when experts disagree," MPRA Paper 57494, University Library of Munich, Germany.
  5. repec:dgr:uvatin:2012112 is not listed on IDEAS
  6. Benchekroun, Hassan & Ray Chaudhuri, Amrita, 2014. "Transboundary pollution and clean technologies," Resource and Energy Economics, Elsevier, Elsevier, vol. 36(2), pages 601-619.
  7. Mark Kagan, 2012. "Climate Change Skepticism in the Face of Catastrophe," Tinbergen Institute Discussion Papers, Tinbergen Institute 12-112/VIII, Tinbergen Institute.
  8. William Brock & Anastasios Xepapadeas & Athanasios Yannacopoulos, . "Robust Control of a Spatially Distributed Commercial Fishery," DEOS Working Papers, Athens University of Economics and Business 1303, Athens University of Economics and Business.
  9. Edilio Valentini & Paolo Vitale, 2014. "Optimal Climate Policy for a Pessimistic Social Planner," Working Papers, Fondazione Eni Enrico Mattei 2014.33, Fondazione Eni Enrico Mattei.
  10. Athanasios Yannacopoulos & Anastasios Xepapadeas, . "Climate Change Policy under Spatially Structured Ambiguity: Hot Spots and the Precautionary Principle," DEOS Working Papers, Athens University of Economics and Business 1332, Athens University of Economics and Business.
  11. Xepapadeas, Anastasios & Ralli, Parthenopi & Kougea, Eva & Spyrou, Sofia & Stavropoulos, Nikolaos & Tsiaousi, Vasiliki & Tsivelikas, Athanasios, 2014. "Valuing insurance services emerging from a gene bank: The case of the Greek Gene Bank," Ecological Economics, Elsevier, Elsevier, vol. 97(C), pages 140-149.
  12. William Brock & Anastasios Xepapadeas & Athanasios Yannacopoulos, 2014. "Optimal Control in Space and Time and the Management of Environmental Resources," DEOS Working Papers, Athens University of Economics and Business 1402, Athens University of Economics and Business.

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