Avoiding an ecological regime shift is sound economic policy

Pim Heijnen and Florian Wagener

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 7, 1322-1341

Abstract: We extend the shallow lake model by adding the capital stock of an industry. A government can mitigate the effects of pollution arising from industrial activities by imposing the requirement to abate emissions. Within this framework two scenarios are examined: in the social optimal benchmark, the social planner optimally allocates investment. In the competitive equilibrium, market forces determine the investment in capital, but the government can still abate emissions. We find that irreversible environmental regime shifts are avoided in the competitive equilibrium by means of a static level of abatement when it is socially optimal to do so.

Keywords: Optimal abatement; Capital stock; Irreversibility; Regime shift (search for similar items in EconPapers)
JEL-codes: C61 Q20 Q50 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:7:p:1322-1341

DOI: 10.1016/j.jedc.2013.03.003

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