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

Bruno Nkuiya

No 117826, Working Papers from University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (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: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 35
Date: 2011-11
New Economics Papers: this item is included in nep-ene, nep-env and nep-gth
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:ulavwp:117826

DOI: 10.22004/ag.econ.117826

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