print logo
­

Resource Depletion and Capital Accumulation under Catastrophic Risk: Policy Actions against Stochastic Thresholds and Stock Pollution

Sammendrag

An intertemporal optimal strategy for accumulation of reversible capital and management of an exhaustible resource is analyzed for a global economy when resource depletion generates discharges that add to a stock pollutant that affects the likelihood for hitting a tipping point or threshold of unknown location, causing a random“disembodied technical regress”. We characterize an optimal strategy by imposing the notion “precautionary tax” on current extraction for preventing a productivity shock driven by stock pollution and a capital subsidy to promote capital accumulation so as to build up a buffer for future consumption opportunities should the threshold be hit. The precautionary tax will internalize the expected welfare loss should a threshold be hit, whereas the capital subsidy will internalize the expected post-catastrophic long-run return from current capital accumulation.

Om publikasjonen

Forfattere:

Nævdal, Eric and Jon Vislie

År:

2013

Serie:

Memorandum
Nummer i serie: 24

JEL:

C61, Q51, Q54

Nøkkelord:

Catastrophic risk, stochastic threshold, optimal saving

Prosjekt:

3182 - Managing Risk in Climate Change - A Dynamic Perspective

Lenke:

[PDF]