Pollution Control Under a Possible Future Shift in Environmental Preferences

36 Pages Posted: 19 Jun 2018

See all articles by Bruno Nkuiya

Bruno Nkuiya

University of California, Santa Barbara

Christopher Costello

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management

Date Written: June 4, 2018

Abstract

We examine how the possibility of a future shift in environmental preferences affects optimal pollution emissions. For example, is a more stringent carbon cap called for if excessive carbon emissions today may trigger a shift toward greener preferences in the future? In contrast to the related literature, which largely focuses on regime shifts in damages, not preferences, we find that the possibility of a shift in environmental preferences can induce higher, or lower, optimal current emissions. This hinges on an economically interesting interplay between the magnitude of the possible shift, whether the shift is endogenous, and the magnitude of environmental damages. This helps reconcile the tension between the conservationists’ view of pollution reduction (to reduce damage and lessen the likelihood of regime shift) and the traditional economic rationale emphasizing risk and discounting.

Keywords: Pollution stock; Regime shift; Abrupt event; Dynamic analysis; Uncertainty; Environmental awareness

JEL Classification: C61; D81; Q54

Suggested Citation

Nkuiya, Bruno and Costello, Christopher, Pollution Control Under a Possible Future Shift in Environmental Preferences (June 4, 2018). Journal of Economic Behavior and Organization, Vol. 132, No. Part B, 2016. Available at SSRN: https://ssrn.com/abstract=3189952

Bruno Nkuiya (Contact Author)

University of California, Santa Barbara ( email )

Bren School
2400 Bren Hall
Santa Barbara, CA 93106
United States

Christopher Costello

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management ( email )

4670 Physical Sciences North
Santa Barbara, CA 93106-5131
United States
(805) 893-5802 (Phone)
(805) 893-7612 (Fax)

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