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Regime shifts and uncertainty in pollution control

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  • de Zeeuw, Aart
  • Zemel, Amos

Abstract

We develop a simple model of managing a system subject to pollution damage, such as climate change, under the risk of an abrupt and random jump in the damage function. The model allows the full dynamic characterization of the optimal emission policies under uncertainty. The results imply precautionary behavior in contrast with the ambiguous outcomes reported in the literature for models of catastrophic occurrences. The framework is used to analyze the adaptation vs. mitigation dilemma and provides a simple criterion to determine when adaptation activities should be undertaken.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:dyncon:v:36:y:2012:i:7:p:939-950
    DOI: 10.1016/j.jedc.2012.01.006
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    More about this item

    Keywords

    Environmental pollution; Optimal management; Catastrophic transitions; Uncertainty; Adaptation; Mitigation;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • 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

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