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Pollution thresholds under uncertainty

Published online by Cambridge University Press:  13 July 2006

FRANZ WIRL
FRANZ WIRL
Affiliation:
University of Vienna, Brünnerstr. 72, 1210 Vienna, Austria Email: Franz.wirl@univie.ac.at
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Abstract

This study investigates the optimal use of ‘dirty’ technologies for economic development and when to stop polluting (either temporarily or forever). This question is addressed within a real option framework where three different kinds of options arise: for stopping pollution temporarily or forever and for re-starting. The possibility to shelve a polluting technology temporarily allows for a more conservationist policy. Costs associated with the option of a re-start lead to hystereses effects that complicate empirical cross-country comparisons of environmental policies.

Type
Research Article
Information
Environment and Development Economics , Volume 11 , Issue 4 , August 2006 , pp. 493 - 506
Copyright
2006 Cambridge University Press

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Footnotes

The first version of the paper was written at University of Technology, Sydney. I am grateful for the enjoyed hospitality at the School of Finance and Economics and for the comments from two anonymous referees.