Double irreversibility and environmental policy design

Arbeitspapier

The design of environmental policy typically takes place within a framework in which uncertainty over the future impact of pollution and two different kinds of irreversibilities interact. The first kind of irreversibility concerns the sunk cost of environmental degradation; the second is related to the sunk cost of environmental policy. Clearly, the two irreversibilities pull in opposite directions: policy irreversibility leads to more pollution and a less/later policy while environmental irreversibility generates less pollution and a more/sooner policy. Using a real option approach and an infinite time horizon model, this paper considers both irreversibilities simultaneously. The model first is developed by paying particular attention to the option values related to pollution and policy adoption. Solving the model in closed form then provides solutions for both the optimal pollution level and the optimal environmental policy timing. Finally, the model is calibrated with the purpose of appraising which irreversibility has the prevailing effect and what is the overall impact of both irreversibilities on pollution and policy design.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Nota di Lavoro ; No. 10.2009

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Environmental Economics: Government Policy ; Criteria for Decision-Making under Risk and Uncertainty
• Thema: Environmental Policy ; Environmental Irreversibility ; Policy Irreversibility

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Pommeret, Aude ; Prieur, Fabien
• Ereignis: Veröffentlichung
• (wer): Fondazione Eni Enrico Mattei (FEEM)
• (wo): Milano
• (wann): 2009

Weitere Informationen

• Handle: http://hdl.handle.net/10419/53364
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ