A Class of Singular Control Problems with Tipping Points

Décamps, Jean-Paul, Fabien Gensbittel, Thomas Mariotti and Villeneuve, Stéphane
Authors registered in the RePEc Author Service: Jean-Paul Décamps

No 21210, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Tipping points characterize situations where a regulated system may experience a sudden and irreversible change and are generally associated with a random state of the system below which the change materializes. In this paper, we study a singular stochastic control problem in which the performance criterion depends on the hitting time of a random state that is not a stopping time for the reference filtration. We establish a connection between the value of this problem and that of a singular control problem involving a diffusion and its running minimum. We provide a verification lemma that we apply to explicitly solve a resource-extraction problem with an ex-ante unknown tipping point.

JEL-codes: C61 Q20 (search for similar items in EconPapers)
Date: 2026-02
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Working Paper: A class of singular control problems with tipping points (2026)
Working Paper: A Class of Singular Control Problems with Tipping Points (2026)
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