REGULATING ENVIRONMENTAL THREATS

Environmental consequences of natural resource exploitation often entail threats of future occurrences of detrimental abrupt events rather than (or in addition to) inflicting a damage gradually. The possibility of abrupt occurrence of climate-change related calamities is a case in mind. The uncertainty associated with the realization of these threats and their public-bad nature complicate the determination of optimal economic response. We analyze the regulation of such environmental threats by means of a Pigouvian hazard tax, based on the shadow cost of the hazard-generating activities. A numerical example illustrates possible effects of the proposed regulation scheme.


Issue Date:
2006
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/7150
Total Pages:
29
JEL Codes:
H23; H41; O13; Q54; Q58
Series Statement:
Discussion Paper
No. 1.06




 Record created 2017-04-01, last modified 2017-08-23

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