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Irreversibilities and the Optimal Timing of Environmental Policy under Knightian Uncertainty

33 Pages Posted: 14 Nov 2005  

Takao Asano

Okayama University - Economics; Osaka University - Institute of Social and Economic Research (ISER)

Date Written: October 2005

Abstract

In this paper, we consider a problem in environmental policy design by applying optimal stopping rules. The purpose of this paper is to analyze the optimal timings at which the government should adopt environmental policies to deal with increases in greenhouse gas concentrations and to reduce emissions of SO2 or CO2 under the continuous-time Knightian uncertainty. Furthermore, we analyze the effects of increases in Knightian uncertainty on optimal environmental policies and the reservation value.

Keywords: Knightian Uncertainty, Environmental Policy, Irreversibilities

JEL Classification: D81, H23, L51, Q23

Suggested Citation

Asano, Takao, Irreversibilities and the Optimal Timing of Environmental Policy under Knightian Uncertainty (October 2005). Institute of Social and Economic Research at Osaka University Discussion Paper No. 643. Available at SSRN: https://ssrn.com/abstract=819604 or http://dx.doi.org/10.2139/ssrn.819604

Takao Asano (Contact Author)

Okayama University - Economics ( email )

Tsushima-naka 3-1-1
Okayama, Okayama 7008530
Japan

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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