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Inattention and pollution regulation policies

Listed author(s):
  • Di Bartolomeo Giovanni
  • Saltari Enrico
  • Semmler Willi
Registered author(s):

    We study the problem of pollution control enacted by some policy of regulation and mitigation. The policymakers are subjected to a trade--off between welfare increasing economic activity and pollution effects from economic activity having a negative effect on current welfare. We hereby assume policymakers that are inattentive. They may respond imprecisely to the continuously available information since they have a limited information processing capacity or make decisions under limited information. Inattention is modeled by using Nonlinear Model Predictive Control. Specifically, our policymakers solve a dynamic decision problem with finite horizon that involves the repetitive solution of an optimal control problem at each sampling instant in a receding horizon fashion. A shorter horizon is interpreted as a measure of inattention. We find that inattention substantially affects the transition dynamics. It leads to quicker, but more costly, transitions. It also leads to an under-evaluation of the environmental costs that may accelerate climate change.

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    Paper provided by Department of Communication, University of Teramo in its series wp.comunite with number 00130.

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    Date of creation: Jan 2017
    Handle: RePEc:ter:wpaper:00130
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