Environmental Policy and the Macroeconomy in the Presence of Ecological Thresholds

Heijdra, Ben J. and Heijnen, Pim (May 2011) Environmental Policy and the Macroeconomy in the Presence of Ecological Thresholds. Former Series > Working Paper Series > IHS Economics Series 269


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Abstract: We study the environmental and economic effects of public abatement in the presence of multiple stable steady-state ecological equilibria. Under shallow-lake dynamics (SLD), the isocline for the stock of pollution features two stable branches, a good and a bad one. Assuming that the ecology is initially located on the upper (bad) branch of the isocline, the ecological equilibrium is hysteretic and a suitably designed temporary abatement policy can be used to steer the environment fromthe bad to the good equilibrium. In all models considered in this paper, a "cold turkey" abatement policy is optimal, i.e. the largest feasible shock should be administered for the shortest possible amount of time. Depending on the particular model used to characterize the economic system, there is a capital feedback effect that either helps or hinders the attainment of a successful abatement policy.;

Item Type: IHS Series
Keywords: 'Shallow-lake dynamics' 'Bifurcation' 'Environmental policy' 'Abatement' 'Overlapping generations'
Classification Codes (e.g. JEL): D60, E62, H23, H63, Q20, Q28, Q50
Date Deposited: 26 Sep 2014 10:39
Last Modified: 26 Sep 2019 16:34
ISBN: 1605-7996
URI: https://irihs.ihs.ac.at/id/eprint/2060

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