Regulating environmental threats

Yacov Tsur, Amos Zemel

    Research output: Contribution to journalArticlepeer-review

    29 Scopus citations


    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 design of optimal economic response. We derive a Pigouvian hazard tax schedule that implements the socially optimal outcome. The tax is based on the expected cost of the hazard-generating activities and serves to reduce hazardous emissions well in advance of the catastrophic occurrence. A numerical example illustrates possible effects of the proposed regulation scheme. Implications for climate policy are discussed.

    Original languageEnglish
    Pages (from-to)297-310
    Number of pages14
    JournalEnvironmental and Resource Economics
    Issue number3
    StatePublished - 1 Mar 2008


    • Abrupt event
    • Climate change
    • Emission
    • Hazard rate
    • Pigouvian tax
    • Regulation
    • Uncertainty

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Management, Monitoring, Policy and Law


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