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Stochastic Environmental Policy, Risk-Taking, and Growth

Listed author(s):
  • Soretz, Susanne

This paper analyzes stochastic productive pollution within a model of endogenous growth. The extent to which the agents perceive their individual influence on aggregate pollution is parameterized. Recursive preferences allow for the separation between intertemporal substitutability and risk aversion. Two different environmental policy regimes are distinguished: A stochastic pollution tax, which is uncorrelated with the technological uncertainty of pollution, is compared with a pure deterministic tax regime. The impact of the stochastic pollution tax on abatement effort and growth is ambiguous and depends on the parameter setting. Nevertheless, it is shown, that for a sufficiently high volatility of the pollution tax, the induced rise in uncertainty associated with pollution leads to an increase in abatement activities and therefore supports the corresponding deterministic environmental policy.

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Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-282.

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Length: 19 pages
Date of creation: Jul 2003
Handle: RePEc:han:dpaper:dp-282
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