Optimality of irreversible pollution accumulation

Abstract

Optimality of irreversible pollution accumulationTahvonen, O.; Withagen, C.A.A.M. Published in: Journal of Economic Dynamics and Control Publication date: 1996Link to publication Citation for published version (APA): Tahvonen, O., & Withagen, C. A. A. M. (1996). Optimality of irreversible pollution accumulation. Journal of Economic Dynamics and Control, 20(9-10), 1775-1797. General rightsCopyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.-Users may download and print one copy of any publication from the public portal for the purpose of private study or research -You may not further distribute the material or use it for any profit-making activity or commercial gain -You may freely distribute the URL identifying the publication in the public portal Take down policyIf you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim. AbstractThis paper considers optimal pollution accumulation when the decay function has an inverted-U shape. Such decay functions have empirical relevance but they lead to nonconvexities in dynamic optimization. The nonconvexity problem is handled here by applying a two-stage optimization procedure. The analysis shows that two qualitatively different optimality candidates may exist simultaneously.We identify cases where the choice can be made on a priori grounds and cases where it requires computation of the present values of both optimality candidates. An optimal emission trajectory leading to irreversible pollution is typically nonmonotonic.

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

“…Therefore, we show the existence of multiple optima. This result echoes Tahvonen and Withagen (1996)'s findings, in their model with a quadratic decay and abundant resource. It also raises the question of how a policy maker should decide between these two policy alternatives with so distinct features.…”

“…In section 4 we derive the optimum for a calibrated example and provide some economic intuition about when irreversibility plays a role. Section 5 compares our results with those obtained by Tahvonen and Withagen (1996). Section 6 concludes.…”

“…Our approach to modelling irreversibility is to assume that the decay rate is linear for levels of pollution up to some critical level, after which decay is zero and remains zero. This way of modeling decay differs from the quadratic approach adopted by Tahvonen and Withagen (1996). We do so in order to capture the fact that the regenerative capacity may vanish abruptly, and not in a smooth way.…”

“…We will also pay attention to the type of decay function employed by Tahvonen and Withagen (1996) in order to see what the effect is of exhaustibility in the context of their model. Since we cannot have sustained extraction at a positive level, it should be clear that, the results differ to a large extent.…”

“…He claims that the inverted-U shaped decay may give rise to a multiplicity of solutions but does not deal with the technical issue of non-convexity. This is done by Tahvonen and Withagen (1996) who provide a detailed analysis of the impact of irreversibility of decay on the optimal control of pollution. The inverted-U shaped decay function introduces a non-convexity and they show that this may result in the existence of multiple paths satisfying the necessary conditions, starting from the same initial stock values.…”