Precaution under mixed uncertainty: Implications for environmental management
A model of pollution control subject to two types of uncertainty is presented. First, the natural decay of the pollution stock follows stochastic dynamics that drives a diffusion pollution process (“stochastic uncertainty”). Moreover, the damage coefficient which determines the amount of damage corresponding to each pollution stock can undergo an abrupt increase at some uncertain future time (“event uncertainty”). The model admits an explicit and simple dynamic characterization of the optimal emission rule and the ensuing pollution process. When only one type of uncertainty is permitted (by setting either the variance of the stochastic process or the hazard rate for the damage increase to zero) it acts to promote the intuitive response of precaution. However, allowing the two types to interact gives rise to a non-monotonic behavior, whereby increasing the stochastic variance first enhances, then diminishes the response to the hazard. The results confirm and expand recent findings based on discrete-time formulations.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Franz Wirl, 2008. "Tragedy of the Commons in a Stochastic Game of a Stock Externality," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(1), pages 99-124, 02.
- Naevdal, Eric, 2006.
"Dynamic optimisation in the presence of threshold effects when the location of the threshold is uncertain - with an application to a possible disintegration of the Western Antarctic Ice Sheet,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 30(7), pages 1131-1158, July.
- Eric Nævdal, 2003. "Dynamic Optimisation in the Presence of Threshold Effects when the Location of the Threshold is Uncertain With an Application to a Possible Disintegration of the Western Antarctic Ice Sheet," Working Papers 143, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
- Wirl, Franz, 2006. "Consequences of irreversibilities on optimal intertemporal CO2 emission policies under uncertainty," Resource and Energy Economics, Elsevier, vol. 28(2), pages 105-123, May.
- Morton I. Kamien & Nancy L. Schwartz, 1971. "Optimal Maintenance and Sale Age for a Machine Subject to Failure," Management Science, INFORMS, vol. 17(8), pages B495-B504, April.
- Leizarowitz, Arie & Tsur, Yacov, 2009. "Resource Management with Stochastic Recharge and Environmental Threats," Discussion Papers 52784, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
- Stephen Polasky & Aart de Zeeuw & Florian Wagener, 2010.
"Optimal Management with Potential Regime Shifts,"
Tinbergen Institute Discussion Papers
10-111/1, Tinbergen Institute.
- Stephen Polasky & Aart de Zeeuw & Florian Wagener, 2010. "Optimal Management with Potential Regime Shifts," CESifo Working Paper Series 3237, CESifo Group Munich.
- De Zeeuw, A. & Polasky, S. & Wagener, F.O.O., 2010. "Optimal Management with Potential Regime Shifts," CeNDEF Working Papers 10-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Merton, Robert C, 1975.
"An Asymptotic Theory of Growth under Uncertainty,"
Review of Economic Studies,
Wiley Blackwell, vol. 42(3), pages 375-93, July.
- Tsur, Yacov & Zemel, Amos, 1998. "Pollution control in an uncertain environment," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 967-975, June.
- Tsur, Yacov & Zemel, Amos, 1996. "Accounting for global warming risks: Resource management under event uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 20(6-7), pages 1289-1305.
- Gjerde, Jon & Grepperud, Sverre & Kverndokk, Snorre, 1999.
"Optimal climate policy under the possibility of a catastrophe,"
Resource and Energy Economics,
Elsevier, vol. 21(3-4), pages 289-317, August.
- Jon Gjerde & Sverre Grepperud & Snorre Kverndokk, 1998. "Optimal Climate Policy under the Possibility of a Catastrophe," Discussion Papers 209, Statistics Norway, Research Department.
- Anastasios Xepapadeas, 1998. "Policy Adoption Rules and Global Warming," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 635-646, April.
- Clarke, Harry R. & Reed, William J., 1994. "Consumption/pollution tradeoffs in an environment vulnerable to pollution-related catastrophic collapse," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 991-1010, September.
- Saphores, Jean-Daniel, 2003. "Harvesting a renewable resource under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 509-529, December.
- Pindyck, Robert S, 1984. "Uncertainty in the Theory of Renewable Resource Markets," Review of Economic Studies, Wiley Blackwell, vol. 51(2), pages 289-303, April.
- Brozovic, Nicholas & Schlenker, Wolfram, 2011. "Optimal management of an ecosystem with an unknown threshold," Ecological Economics, Elsevier, vol. 70(4), pages 627-640, February.
When requesting a correction, please mention this item's handle: RePEc:eee:resene:v:34:y:2012:i:2:p:188-197. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.