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Pollution in times of economic uncertainty: A perverse tragedy of the commons?

Ramón E. López, Roberto Pastén and Pablo Gutiérrez C.
Authors registered in the RePEc Author Service: Ramon Lopez

Working Papers from University of Chile, Department of Economics

Abstract: We explore the effects of economic uncertainty on environmental pollution. We show conditions under which an increase of economic uncertainty raises pollution. The results depend on the consumers’ level of risk aversion and prudence behavior, as well as on the elasticity of substitution between pollution and conventional inputs. Under several widely used specifications for preferences and production technologies, we show that, given available empirical evidence about the parameters characterizing these specifications, a damning vicious cycle between increasing economic uncertainty and pollution is likely to occur.

Pages: 29 pages
Date: 2020-08
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
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