Optimal emission policy under the risk of irreversible pollution

Alain Ayong Le Kama (), Aude Pommeret () and Fabien Prieur

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Abstract: We consider an optimal consumption and pollution problem that has two important features. Environmental damages due to economic activities may be irreversible and the level at which the degradation becomes irreversible is unknown. Particular attention is paid to the situation where agents are relatively impatient and/or do not care a lot about the environment and/or Nature regenerates at low rate. We show that the optimal policy of the uncertain problem drives the economy in the long run toward a steady state while, when ignoring irreversibility, the economy follows a balanced growth path accompanied by a perpetual decrease in environmental quality and consumption, both asymptotically converging toward zero. Therefore, accounting for the risk of irreversibility induces more conservative decisions regarding consumption and polluting emissions. In general, however, we cannot rule out situations where the economy will optimally follow an irreversible path and consequently, will also be left, in the long run, with an irreversibly degraded environment.

Keywords: irreversibility threshold; Optimal control; optimal reversible and irreversible policy; uncertainty (search for similar items in EconPapers)
Date: 2014
Note: View the original document on HAL open archive server: https://hal.univ-grenoble-alpes.fr/hal-01280775v1
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Citations: View citations in EconPapers (11)

Published in Journal of Public Economic Theory, 2014, 16 (6), pp.959-980. ⟨10.1111/jpet.12085⟩

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Related works:
Journal Article: Optimal Emission Policy under the Risk of Irreversible Pollution (2014)
Working Paper: Optimal Emission Policy under the Risk of Irreversible Pollution (2011)
Working Paper: Optimal Emission Policy under the Risk of Irreversible Pollution (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01280775

DOI: 10.1111/jpet.12085

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