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Do Increases in Environmental Risk Reduce Welfare? A Dynamic Game Perspective

Hassan Benchekroun () and Ngo Long

CIRANO Working Papers from CIRANO

Abstract: We consider the effect of an increase in the risk from pollution. We show that in the case of a flow pollution, when the number of players is sufficiently large, the result of Bramoulle and Treich, showing that a marginal increase of risk in the neighborhood of a risk-free world is welfare-improving, holds even when we consider non-marginal increases in risk and for any initial values of the risk. By contrast, in the case of a stock pollutant, we show that starting in a risk-free world a marginal increase in risk is always welfare reducing. However if the initial value of the risk is sufficiently large, the impact of an increase in risk depends on the level of the stock pollutant. In this non-negligible risk case, it is only for values of the stock of pollution that are below a certain threshold that an increase in risk can mitigate the failure from cooperation over emissions and increase welfare On étudie l'effet d'une augmentation du niveau de risque environnemental. On montre que dans le cas d'un flux de pollution, quand le nombre de joueurs est assez grand, une augmentation de l'incertitude est bonne pour le bien-être social. Par contre, dans le cas d'un stock de pollution, si la situation initiale est sans risque, une augmentation marginale du risque est préjudiciable. Cependant, si l'on commence avec un niveau de risque assez élevé, l'effet d'une augmentation du risque dépend du niveau du stock initial. Si ce dernier est inférieur à un certain seuil, une augmentation du risque peut pallier la défaillance de coopération et améliorer le bien-être social.

Keywords: Tragedy of the commons; transboundary pollution; uncertainty; risk; differential games; Tragédie des biens communs; pollution transfrontière; incertitude; risque; jeux différentiels (search for similar items in EconPapers)
JEL-codes: C73 Q50 D80 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env
Date: 2013-04-01
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Handle: RePEc:cir:cirwor:2013s-08