International Emission Strategies under the Threat of a Sudden Jump in Damages
AbstractWe characterize the equilibrium level of emissions, the equilibrium stock of global pollution and the discounted net social welfare for both the cooperative and non-cooperative equilibria when the countries face the threat of a sudden irreversible jump in the global damages at an unknown date. The goal is to analyze the impact of this type of uncertainty on the equilibrium behavior of the countries. We find that it can have a significant effect on those equilibria. Countries reduce their emissions to mitigate their exposure to this threat. As the level of threat rises, countries adjust their emissions to lower the stock of pollutant. However, although initially this threat has the effect of lowering the discounted net welfare, it can in the long run have a net positive effect on welfare. The emissions trajectory is non-monotonic and discontinuous, but only under the threat.
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Bibliographic InfoPaper provided by University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE) in its series Working Papers with number 117826.
Date of creation: Nov 2011
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Global pollution; Environmental uncertainty; regime shift; stochastic differential games; Environmental Economics and Policy; C61; C7; D81; Q54;
Other versions of this item:
- Bruno Nkuiya, 2011. "International Emission Strategies under the Threat of a Sudden Jump in Damages," Cahiers de recherche CREATE 2011-1, CREATE.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-20 (All new papers)
- NEP-ENE-2012-02-20 (Energy Economics)
- NEP-ENV-2012-02-20 (Environmental Economics)
- NEP-GTH-2012-02-20 (Game Theory)
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- de Zeeuw, Aart & Zemel, Amos, 2012.
"Regime shifts and uncertainty in pollution control,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 36(7), pages 939-950.
- Aart de Zeeuw & Amos Zemel, 2012. "Regime Shifts and Uncertainty in Pollution Control," CESifo Working Paper Series 3697, CESifo Group Munich.
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