Regime shifts and uncertainty in pollution control

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We develop a simple model of managing a system subject to pollution damage under risk of an abrupt and random jump in the damage coefficient. The model allows the full dynamic characterization of the optimal emission policies under uncertainty. The results, that imply prudent behavior due to uncertainty, are compared with the ambiguous outcomes reported in the literature for similar models. The differences are explained in terms of the properties of the damage function associated with each model. The framework is used to analyze the adaptation vs. mitigation dilemma and provides a simple criterion to determine whether adaptation activities should be undertaken promptly, delayed to some future date, or avoided altogether. Terms of use: Documents in EconStor mayJEL-Code: Q280, Q520, Q540.

Environmental tipping points significantly affect the cost−benefit assessment of climate policies

“…We show that environmental tipping points can profoundly alter cost−benefit analysis, justifying a much more stringent climate policy, which takes the form of a higher immediate price on carbon. environmental tipping points has been shown to produce a precautionary optimal management response in many cases (20)(21)(22). Stochastic uncertainty surrounding climate change damages has been shown to generally increase the optimal level of mitigation (23,24).…”

Optimal adaptation strategies to face shocks on groundwater resources

“…We base our analysis on the groundwater extraction model by Gisser and Sanchez, (see [10]), where G(t) and g(t) are respectively the stock (in volume) 6 and water pumping rate of the aquifer as a function of time 7 . We assume that…”

“…However, using a numerical example, we show that nonmonotonic extraction behavior is possible in the short term, when the value of the shock is important and when it takes place later in time. Second, when the date of the shock is a random variable, some hints about possible solutions can be derived from the literature on catastrophic events, in the context of groundwater resource management (see Tsur and Zemel (2012, 2004, 1995 [18], [17], [15]) and pollution control (see Brozovic and Schlenker (2011) [2], Clarke and Reed (1994) [3], de Zeeuw and Zemel (2012) [6], Tsur and Zemel (1996) [16] and Zemel (2012) [19]). …”

“…Some studies show that an increase in uncertainty leads to non-monotonic changes in precautionary behavior (see Brozovic and Schlenker (2011) [2], Clarke and Reed (1994) [3], Zemel (2012) [19]), while others show that an increase in uncertainty leads to a decrease in precautionary behavior (see Zemel (2004, 1995) [17]), [15]). Still others conclude that an increase in uncertainty leads to an increase in precautionary behavior (see de Zeeuw and Zemel (2012) [6], Tsur and Zemel (2004) [17]). For example, Brozovic and Schlenker (2011) in [2] and Zemel (2012) in [19] found a non-monotonic relation when several sources of uncertainty are combined.…”

“…3 In contrast, they showed that more precautionary behavior is applied in the long run in the case of reversible exogenous events or endogenous events. Moreover, in [6], de Zeeuw and Zemel (2012) proved that the introduction of a random jump in the damage function of a pollution control model leads to more precautionary behavior, both in the case of endogenous events and irreversible exogenous events.…”