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International Emission Strategies under the Threat of a Sudden Jump in Damages

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  • Bruno Nkuiya
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    Abstract

    We 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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    File URL: https://www.create.ulaval.ca/sites/create.ulaval.ca/files/Publications/create2011-1.pdf
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    Bibliographic Info

    Paper provided by CREATE in its series Cahiers de recherche CREATE with number 2011-1.

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    Date of creation: 2011
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    Handle: RePEc:lvl:creacr:2011-1

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    Postal: Faculté des sciences de l'agriculture et de l'alimentation, Pavillon Paul-Comtois, 2425 rue de l'Agriculture, local 4424, Québec, Qc, G1V 0A6
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    Related research

    Keywords: Global pollution; environmental uncertainty; regime shift; stochastic differential games;

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    Cited by:
    1. 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.

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