Regime shifts and uncertainty in pollution control

A.J. de Zeeuw, A. Zemel

Research output: Contribution to journalArticleScientificpeer-review

52 Citations (Scopus)

Abstract

We develop a simple model of managing a system subject to pollution damage, such as climate change, under the risk of an abrupt and random jump in the damage function. The model allows the full dynamic characterization of the optimal emission policies under uncertainty. The results imply precautionary behavior in contrast with the ambiguous outcomes reported in the literature for models of catastrophic occurrences. The framework is used to analyze the adaptation vs. mitigation dilemma and provides a simple criterion to determine when adaptation activities should be undertaken.
Original languageEnglish
Pages (from-to)939-950
JournalJournal of Economic Dynamics and Control
Volume36
Issue number7
Publication statusPublished - 2012

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