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Pollution control: targets and dynamics

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Author Info

  • Giuseppe Travaglini

    ()
    (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")

Abstract

In this paper I study the e¤ects of environmental regulation which establishes upper and lower binding targets to pollution emissions. Essentially, I deal with the properties of a stochastic model of pollution control in continuous-time under emission targets and uncertainty, emphasizing dynamic nonlinearities. Inside the targets pollution behaves as if it were freely floating until it hits one of the two limits. The model provides three main results. First, I show that binding targets can affect the pollution floating even when the boundaries are currently slack. Solutions of the model show that pollution becomes an S-shaped locus of the fundamentals. Second, I show that binding targets will lead to more stable pollution rate determination within the boundaries, than free floating. Finally, stabilization of pollution is related to the growth rate and volatility of fundamentals, to the sensitivity to expected changes of pollution rate and to the credibility of the authorities in defending the pollution targets.

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File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_12_01.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 1201.

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Length: 17 pages
Date of creation: 2012
Date of revision: 2012
Handle: RePEc:urb:wpaper:12_01

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Web page: http://www.econ.uniurb.it/
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Related research

Keywords: Pollution targets; Optimal stochastic control; Uncertainty; Environmental policy.;

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References

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  1. Pindyck, Robert S., 1998. "Irreversibilities and the timing of environmental policy," Working papers WP 4047-98., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Lin, Tyrone T. & Huang, Shio-Ling, 2010. "An entry and exit model on the energy-saving investment strategy with real options," Energy Policy, Elsevier, vol. 38(2), pages 794-802, February.
  3. Saltari, Enrico & Travaglini, Giuseppe, 2011. "The effects of environmental policies on the abatement investment decisions of a green firm," Resource and Energy Economics, Elsevier, vol. 33(3), pages 666-685, September.
  4. Hannes Egli & Thomas Steger, 2007. "A Dynamic Model of the Environmental Kuznets Curve: Turning Point and Public Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(1), pages 15-34, January.
  5. Anastasios Xepapadeas, 1999. "Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions Under Uncertainty and Irreversibility," NBER Technical Working Papers 0243, National Bureau of Economic Research, Inc.
  6. Saltari, Enrico & Travaglini, Giuseppe, 2011. "Optimal abatement investment and environmental policies under pollution uncertainty," MPRA Paper 35072, University Library of Munich, Germany.
  7. Saltari Enrico & Travaglini Giuseppe, 2003. "How Do Future Constraints Affect Current Investment?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-21, June.
  8. Mäler, K-G. & Xepapadeas, A. & Zeeuw, A.J. de, 2000. "The Economics of Shallow Lakes," Discussion Paper 2000-69, Tilburg University, Center for Economic Research.
  9. Lin, Tyrone T. & Ko, Chuan-Chuan & Yeh, Hsin-Ni, 2007. "Applying real options in investment decisions relating to environmental pollution," Energy Policy, Elsevier, vol. 35(4), pages 2426-2432, April.
  10. Susanne Soretz, 2007. "Efficient Dynamic Pollution Taxation in an Uncertain Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(1), pages 57-84, January.
  11. Saltari, Enrico & Travaglini, Giuseppe, 2006. "The effects of future financing constraints on capital accumulation: Some new results on the constrained investment problem," Research in Economics, Elsevier, vol. 60(2), pages 85-96, June.
  12. Lucas Bretschger & Sjak Smulders, 2007. "Sustainable Resource Use and Economic Dynamics," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(1), pages 1-13, January.
  13. Smulders, J.A. & Gradus, R.H.J.M., 1993. "Pollution abatement and long-term growth," Discussion Paper 1993-73, Tilburg University, Center for Economic Research.
  14. repec:ebl:ecbull:v:5:y:2008:i:6:p:1-9 is not listed on IDEAS
  15. Ansar, Jasmin & Sparks, Roger, 2009. "The experience curve, option value, and the energy paradox," Energy Policy, Elsevier, vol. 37(3), pages 1012-1020, March.
  16. Pindyck, Robert S., 2002. "Optimal timing problems in environmental economics," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1677-1697, August.
  17. Travaglini Giuseppe, 2008. "An exact consumption rule with liquidity constraints and stochastic income," Economics Bulletin, AccessEcon, vol. 5(6), pages 1-9.
  18. Xepapadeas, Anastasios, 2005. "Economic growth and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pages 1219-1271 Elsevier.
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Citations

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Cited by:
  1. Saltari, Enrico & Travaglini, Giuseppe, 2011. "Optimal abatement investment and environmental policies under pollution uncertainty," MPRA Paper 35072, University Library of Munich, Germany.
  2. Travaglini, Giuseppe & Saltari, Enrico, 2012. "A model of waste control and abatement capital: Permanent versus temporary environmental policies," MPRA Paper 36522, University Library of Munich, Germany.

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