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Robust Abatement Policy with Uncertainty About Environmental Disasters

Author

Listed:
  • Yingjie Niu

    (Shanghai University)

  • Zhentao Zou

    (Wuhan University)

Abstract

We consider the robust responses to environmental disasters in stochastic growth economies. The representative agent has imprecise knowledge about environmental disasters and exhibits ambiguity aversion to the jump arrival intensity. In the equilibrium, the optimal abatement expenditure is increasing in the level of ambiguity aversion, which overturns the effect of model uncertainty on capital investment. Because of mitigating future damages, the incremental abatement may enhance long-run economic growth. In addition, welfare gains from abatement technology and the social cost of carbon become more substantial under ambiguous circumstances. Finally, we extend the baseline model by considering emission stock and find the main results still hold in this extension.

Suggested Citation

  • Yingjie Niu & Zhentao Zou, 2024. "Robust Abatement Policy with Uncertainty About Environmental Disasters," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(4), pages 933-965, April.
    • Handle: RePEc:kap:enreec:v:87:y:2024:i:4:d:10.1007_s10640-024-00843-4
    DOI: 10.1007/s10640-024-00843-4
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    More about this item

    Keywords

    Environmental disasters; Ambiguity aversion; Abatement; Economic growth; Social cost of carbon;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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