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International Emission Strategies under the Threat of a Sudden Jump in Damages

Bruno Nkuiya

Cahiers de recherche CREATE from CREATE

Abstract: We characterize the equilibrium level of emissions, the equilibrium stock of global pollution and the discounted net social welfare for both the cooperative and non-cooperative equilibria when the countries face the threat of a sudden irreversible jump in the global damages at an unknown date. The goal is to analyze the impact of this type of uncertainty on the equilibrium behavior of the countries. We find that it can have a significant effect on those equilibria. Countries reduce their emissions to mitigate their exposure to this threat. As the level of threat rises, countries adjust their emissions to lower the stock of pollutant. However, although initially this threat has the effect of lowering the discounted net welfare, it can in the long run have a net positive effect on welfare. The emissions trajectory is non-monotonic and discontinuous, but only under the threat.

Keywords: Global pollution; environmental uncertainty; regime shift; stochastic differential games (search for similar items in EconPapers)
JEL-codes: C61 C7 D81 Q54 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ene and nep-env
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:lvl:creacr:2011-1

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