IDEAS home Printed from
   My bibliography  Save this paper

Pollution Reduction, Environmental Uncertainty, and the Irreversibility Effect


  • Saphores, Jean-Daniel M.


  • Carr, Peter


This paper analyses the decision to invest to reduce the emissions of a stock pollutant under environmental uncertainty. It shows that this decision depends on the type and level of uncertainty. When uncertainty is small, there is no simple irreversibility effect because of the tension between environmental irreversibility (the stock of pollutant causes costly long-term social damages), and investment irreversibility (pollution abatement investments are sunk). When uncertainty is large enough, however, pollutant emissions should be curbed immediately. A continuous time formulation based on real options illustrates the link between flexibility and option value. These results have implications for global warming.

Suggested Citation

  • Saphores, Jean-Daniel M. & Carr, Peter, 1998. "Pollution Reduction, Environmental Uncertainty, and the Irreversibility Effect," Cahiers de recherche 9827, Université Laval - Département d'économique.
  • Handle: RePEc:lvl:laeccr:9827

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    Stock externalities; Emission control; Irreversibilities; Uncertainty; Option value; Real options; Climate change;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lvl:laeccr:9827. 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: (Manuel Paradis). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.