Environmental and Resource Economics

, Volume 55, Issue 1, pp 47–70

Environmental Abatement and the Macroeconomy in the Presence of Ecological Thresholds

Article

Abstract

We study the environmental and economic effects of public abatement in the presence of multiple stable steady-state ecological equilibria featuring reversible hysteresis. The isocline for the stock of pollution possesses two stable branches. Assuming that the ecology is initially located on the upper (high pollution) branch of the isocline, a simple time-invariant temporary abatement policy can be used to steer the environment from the high- to the low-pollution equilibrium. In all models considered in this paper, a “cold turkey” abatement policy is optimal within the class of stepwise policies, i.e. the largest feasible shock should be administered for the shortest possible amount of time. The cold-turkey result is robust to alternative models for the economic system, although there is a capital feedback effect that either helps or hinders the speed of transition to the low-pollution equilibrium.

Keywords

Ecological thresholds nonlinear dynamics environmental policy abatement overlapping generations 

JEL Classification

D60 E62 H23 H63 Q20 Q28 Q50 

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Supplementary material

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Copyright information

© Springer Science+Business Media Dordrecht 2012

Authors and Affiliations

  1. 1.Faculty of Economics and BusinessUniversity of GroningenGroningenThe Netherlands
  2. 2.IHSViennaAustria
  3. 3.NetsparTilburgThe Netherlands
  4. 4.CESifoMunichGermany

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