Safe Minimum Standards in Dynamic Resource Problems—Conditions for Living on the Edge of Risk

Abstract Safe Minimum Standards (SMSs) have been advocated as a policy rule for environmental problems where uncertainty about risks and consequences are thought to be profound. This paper explores the rationale for such a policy within a dynamic framework and derives conditions for when SMS can be summarily dismissed as a policy choice and for when SMS can be defended as an optimal policy based on standard economic criteria. We have determined that these conditions can be checked with quite limited information about damages and risks. In order to analyze the SMSs in a dynamic setting, we have developed a method for solving optimal control problems where the state space is divided into risky and non-risky subsets.safe minimum standards; optimal control; critical zone; threshold effects; mixed risk spaces

The speed of transition revisited

The speed of transition literature appears to have overlooked the fact that due to the dynamic nature of the economy the post-transition economic performance influences optimal behavior already during transition. We illustrate the implications of this neglect using the well-known model of Aghion and Blanchard (1994, Section 6.4). The correct solution differs in several respects from the "approximate" solution presented by Aghion and Blanchard. First, unemployment is increasing up to a certain endogenous point in time, when, second, the remaining state sector is closed down. This point in time can be defined as the end of transition. The correct solution is based on transforming the problem to a type of a dynamic optimization problem often encountered in resource economics: a scrap value problem with free terminal time

OPTIMAL REGULATION OF EUTROPHYING LAKES, FJORDS AND RIVERS IN THE PRESENCE OF THRESHOLD EFFECTS

In a large number of practical environmental regulation problems, the damage done by pollutants depends on stocks and/or flows of pollutants exceeding certain thresholds. A typical example is eutrophication which occur when stocks of nutrients in a lake exceeds a certain threshold. The present paper presents a model of eutrophication that accounts for such thresholds. The paper does so by applying a novel technique in optimal control theory that allows for the analysis of systems where state-variables bounce back and forth over thresholds that take the form of functions of time and state-variables

Safe Minimum Standards in Dynamic Resource Problems -- Conditions for Living on the Edge of Risk

Safe Minimum Standards (SMSs) have been advocated as a policy rule for environmental problems where uncertainty about risks and consequences are thought to be profound. This paper explores the rationale for such a policy within a dynamic framework and derives conditions for when SMSs can be summarily dismissed as a policy choice and for when SMSs can be defended as an optimal policy based on standard economic criteria. We have determined that these conditions can be checked with quite limited information about damages and risks. In order to analyze the SMSs in a dynamic setting, we have developed a method for solving optimal control problems where the state space is divided into risky and non-risky subsets