Regime Shifts and Uncertainty in Pollution Control

22 Pages Posted: 18 Jan 2012

See all articles by Aart de Zeeuw

Aart de Zeeuw

Tilburg University - Department of Economics

Amos Zemel

Ben-Gurion University of the Negev

Date Written: January 17, 2012

Abstract

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.

Keywords: environmental pollution, optimal management, catastrophic transitions, uncertainty, adaptation, mitigation

JEL Classification: Q280, Q520, Q540

Suggested Citation

de Zeeuw, Aart J. and Zemel, Amos, Regime Shifts and Uncertainty in Pollution Control (January 17, 2012). CESifo Working Paper Series No. 3697, Available at SSRN: https://ssrn.com/abstract=1986753

Aart J. De Zeeuw (Contact Author)

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2065 (Phone)
+31-13-466-3042 (Fax)

Amos Zemel

Ben-Gurion University of the Negev ( email )

Be'er Sheva
8410501
Israel

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