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Emerging environmental problems, irreversible remedies, and myopia in a two country setup


  • Marcel Boyer
  • Pierre Lasserre
  • Michel Moreaux


[eng] As development proceeds, the demand for environmental protection increases. We study optimal investment decision rules when protection investments are irreversible and indivisible. We show that myopia (focusing on one particular outlay without considering investments that are to come later in the sequence or are to be made by another jurisdiction) does not lead to errors in timing but greatly simplifies decision analysis. In a two country setup where each outlay benefits both countries, we also find that the equilibrium time sequence that arises when both countries must take turns to invest is also an equilibrium when the order is endogenous. [fre] Avec la croissance apparaissent de nouveaux besoins de protection de l'environnement. Nous étudions les règles d'investissement optimales lorsque les décisions sont irréversibles et les dépenses indivisibles. Une attitude myope consistant à ne prendre en compte que les données immédiates du problème sans considération des investissements futurs ni de ceux d'autres juridictions simplifie énormément l'analyse et mène dans certains cas aux décisions optimales. Dans un modèle à deux pays où chaque pays bénéficie des investissements de l'autre, la chronologie d'investissement choisie lorsque les pays doivent investir tour à tour constitue également un équilibre lorsque l'ordre d'intervention est endogène.

Suggested Citation

  • Marcel Boyer & Pierre Lasserre & Michel Moreaux, 1998. "Emerging environmental problems, irreversible remedies, and myopia in a two country setup," Revue d'Économie Industrielle, Programme National Persée, vol. 83(1), pages 47-61.
  • Handle: RePEc:prs:recind:rei_0154-3229_1998_num_83_1_1698
    Note: DOI:10.3406/rei.1998.1698

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    References listed on IDEAS

    1. Andrew B. Abel & Avinash K. Dixit & Janice B. Eberly & Robert S. Pindyck, "undated". "Options, the Value of Capital, and Investment," Rodney L. White Center for Financial Research Working Papers 15-95, Wharton School Rodney L. White Center for Financial Research.
    2. Coggins, Jay S. & Ramezani, Cyrus A., 1998. "An Arbitrage-Free Approach to Quasi-Option Value," Journal of Environmental Economics and Management, Elsevier, vol. 35(2), pages 103-125, March.
    3. repec:fth:geneec:94.09 is not listed on IDEAS
    4. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
    5. Andrew B. Abel & Avinash K. Dixit & Janice C. Eberly & Robert S. Pindyck, 1996. "Options, the Value of Capital, and Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 753-777.
    6. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    7. Baranzini, A. & Chesney, M. & Morisset, J., 1994. "Uncertainty and Global Warming Policy," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 94.11, Institut d'Economie et Econométrie, Université de Genève.
    8. John V. Leahy, 1993. "Investment in Competitive Equilibrium: The Optimality of Myopic Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 1105-1133.
    9. Boyer, M. & Lasserre, P. & Mariotti, T. & Moreaux, M., 1998. "Industry Development under Alternative Market Structures," Papers 98.497, Toulouse - GREMAQ.
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    Cited by:

    1. Lazzarini, Sergio G. & Mesquita, Luiz F. & Cronin, Patrick, 2007. "Determinants of Firm Competitiveness in Latin American Emerging Economies: Evidence from Brazil’s Auto-parts Industry," Insper Working Papers wpe_82, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    2. Boyer, Marcel & Moreaux, Michel, 2000. "Flexibilité et stratégies d’impartition," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(2), pages 199-224, juin.

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