Robust Abatement Policy with Uncertainty About Environmental Disasters

Yingjie Niu and Zhentao Zou ()
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Yingjie Niu: Shanghai University
Zhentao Zou: Wuhan University

Environmental & Resource Economics, 2024, vol. 87, issue 4, No 3, 933-965

Abstract: Abstract We consider the robust responses to environmental disasters in stochastic growth economies. The representative agent has imprecise knowledge about environmental disasters and exhibits ambiguity aversion to the jump arrival intensity. In the equilibrium, the optimal abatement expenditure is increasing in the level of ambiguity aversion, which overturns the effect of model uncertainty on capital investment. Because of mitigating future damages, the incremental abatement may enhance long-run economic growth. In addition, welfare gains from abatement technology and the social cost of carbon become more substantial under ambiguous circumstances. Finally, we extend the baseline model by considering emission stock and find the main results still hold in this extension.

Keywords: Environmental disasters; Ambiguity aversion; Abatement; Economic growth; Social cost of carbon (search for similar items in EconPapers)
JEL-codes: D81 E20 Q52 Q54 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10640-024-00843-4

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