A Hotelling Model with a Ceiling on the Stock of Pollution

Chakravorty, Ujjayant; Magné, Bertrand; Moreaux, Michel

doi:10.2139/ssrn.734323

Cited by 25 publications

(48 citation statements)

References 22 publications

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“…2 Next, we address the question whether it could be optimal to stay inz for a while before entering the irreversible region and leaving some of the resource unexploited. The answer is negative, as can be seen from condition (6). Suppose that for some interval of time z(t) =z and y(t) = αz.…”

Section: Irreversible Solutionsmentioning

confidence: 99%

“…Then, during this period the extraction level is precisely equal to αz = 9.96. According to condition (6), for the switch to the irreversible region to be optimal, the loss incurred by the economy, due to the vanishing of pollution decay, must be compensated by a sufficient increase in extraction and hence consumption. But, for the parameter values chosen, the extraction rate is already high (and close to the maximum possible levelȳ) before entering the irreversible region, which precludes the upward jump.…”

Section: Optimality: a Numerical Examplementioning

confidence: 99%

“…In other words, from the frontier "irreversible T x < ∞ with a stage at the threshold" onwards, we have three optimality candidates. 6 So, for any initial pollution stock, the initial resource endowment is crucial to understand both the number and the nature of the optimality candidates. This is a prerequisite for the analysis of the optimal policy.…”

Section: Optimality: a Numerical Examplementioning

confidence: 99%

“…The reversible policy staying inz for a while and the policy entering directly the irre- 6 Note that there exists a last frontier above which irreversible candidates, that passes through the threshold for just an instant of time, lead to resource conservation. But, the range of values of x 0 (>19000 GtC) allowing for resource conservation does not seem to be relevant for our analysis.…”

Section: Optimality: a Numerical Examplementioning

confidence: 99%

“…Examples of this approach are Chakravorty et al (2006Chakravorty et al ( , 2008. This is usually motivated in the following ways.…”

Section: Introductionmentioning

confidence: 99%

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Optimal emission-extraction policy in a world of scarcity and irreversibility

Prieur

Tidball

Withagen

2013

Resource and Energy Economics

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This paper extends the classical exhaustible-resource/stock-pollution model with irreversibility of pollution decay, meaning that after reaching some threshold there is no decay of the pollution stock. Within this framework, we answer the question how the potential irreversibility of pollution affects the extraction path. We investigate the conditions under which the economy will optimally adopt a reversible policy, and when it is optimal to enter the irreversible region. In the case of irreversibility it may be optimal to leave a positive amount of resource in the ground forever. As far as the optimal extraction/emission policy is concerned, several types of solutions may arise, including solutions where the economy stays at the threshold for a while. Given that different programs may satisfy the first order conditions for optimality, we further investigate when each of these is optimal. The analysis is illustrated by means of a calibrated example. To sum up, for any pollution level, we can identify a critical resource stock such that there exist multiple optima i.e. a reversible and an irreversible policy that yield exactly the same present value. For any resource stock below this critical value, the optimal policy is reversible whereas with large enough resources, irreversible policies outperform reversible programs. Finally, the comparison between irreversible policies reveals that it is never optimal for the economy to stay at the threshold for a while before entering the irreversible region. JEL-Code: Q300, Q530, C610.

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Section: Irreversible Solutionsmentioning

confidence: 99%

Section: Optimality: a Numerical Examplementioning

confidence: 99%

Section: Optimality: a Numerical Examplementioning

confidence: 99%

Section: Optimality: a Numerical Examplementioning

confidence: 99%

“…Examples of this approach are Chakravorty et al (2006Chakravorty et al ( , 2008. This is usually motivated in the following ways.…”

Section: Introductionmentioning

confidence: 99%

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Optimal emission-extraction policy in a world of scarcity and irreversibility

Prieur

Tidball

Withagen

2013

Resource and Energy Economics

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Endogenous Growth with a Ceiling on the Stock of Pollution

Kollenbach

2014

Environ Resource Econ

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The eects of an agreement such as the Kyoto Protocol, which implicitly imposes a ceiling on the stock of pollution, have recently been studied in Hotelling models. We add pollution and a ceiling to the endogenous growth model of Tsur and Zemel (2005) to study the eects of the ceiling on capital accumulation and research investments. The ceiling increases the scarcity of the exhaustible resource in the short run, which boosts backstop utilization.This implies that R&D becomes more benecial compared with capital accumulation.How the short run development path of an economy is aected depends on its capital endowment or richness, respectively. Only economies which are neither too rich nor too poor may invest more into research. In the long run an economy with a ceiling follows basically the same long run development path as an economy without the ceiling.

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Carbon pricing under uncertainty

Ploeg

2021

Int Tax Public Finance

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Economists have adopted the Pigouvian approach to climate policy, which sets the carbon price to the social cost of carbon. We adjust this carbon price for macroeconomic uncertainty and disasters by deriving the risk-adjusted discount rate. We highlight ethics- versus market-based calibrations and discuss the effects of a falling term structure of the discount rate. Given the wide range of estimates used for marginal damages and the discount rate, it is unsurprising that negotiators and policy makers have rejected the Pigouvian approach and adopted a more pragmatic approach based on a temperature cap. The corresponding cap on cumulative emissions is lower if risk tolerance and temperature sensitivity are more uncertain. The carbon price then grows much faster than under the Pigouvian approach and discuss how this rate of growth is adjusted by economic and abatement cost risks. We then analyse how policy uncertainty and technological breakthrough can lead to the risk of stranded assets. Finally, we discuss various obstacles to successful carbon pricing.

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A Hotelling Model with a Ceiling on the Stock of Pollution

Cited by 25 publications

References 22 publications

Optimal emission-extraction policy in a world of scarcity and irreversibility

Optimal emission-extraction policy in a world of scarcity and irreversibility

Endogenous Growth with a Ceiling on the Stock of Pollution

Carbon pricing under uncertainty

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