Environmental Policy and the Macroeconomy Under Shallow-Lake Dynamics

39 Pages Posted: 3 Dec 2009

See all articles by Ben J. Heijdra

Ben J. Heijdra

University of Groningen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Pim Heijnen

University of Amsterdam - Faculty of Economics and Business (FEB)

Date Written: November 2009

Abstract

We study the environmental and economic effects of public abatement in the presence of multiple stable steady-state ecological equilibria. Under shallow-lake dynamics (SLD), the isocline for the stock of pollution features two stable branches, a good and a bad one. Assuming that the ecology is initially located on the upper (bad) branch of the isocline, the ecological equilibrium is hysteretic and a suitably designed temporary abatement policy can be used to steer the environment from the bad to the good equilibrium. In all models considered in this paper, a “cold turkey” abatement policy is optimal, i.e. the largest feasible shock should be administered for the shortest possible amount of time. Depending on the particular model used to characterize the economic system, there is a capital feedback effect that either helps or hinders the attainment of a successful abatement policy.

Keywords: Shallow-lake dynamics, bifurcation, environmental policy, abatement, overlapping generations

JEL Classification: D60, E62, H23, H63, Q20, Q28, Q50

Suggested Citation

Heijdra, Ben J. and Heijnen, Pim, Environmental Policy and the Macroeconomy Under Shallow-Lake Dynamics (November 2009). CESifo Working Paper Series No. 2859, Available at SSRN: https://ssrn.com/abstract=1516228 or http://dx.doi.org/10.2139/ssrn.1516228

Ben J. Heijdra (Contact Author)

University of Groningen - Department of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
+31 50 363 7303 (Phone)
+31 50 363 7337 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Pim Heijnen

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
60
Abstract Views
821
Rank
562,013
PlumX Metrics