Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/90732
Authors: 
Nævdal, Eric
Vislie, Jon
Year of Publication: 
2012
Series/Report no.: 
Memorandum, Department of Economics, University of Oslo 24/2012
Abstract: 
An intertemporal optimal strategy for accumulation of reversible capital and management of an exhaustible resource is analyzed for a global economy when resource depletion generates discharges that add to a stock pollutant that affects the likelihood for hitting a tipping point or threshold of unknown location, causing a random disembodied technical regress. We characterize the optimal strategy by imposing the notion precautionary tax on current extraction. Such a tax will internalize future expected damages or expected welfare loss should a threshold be hit. With reversible capital the presence of a stochastic threshold should speed up accumulation as long as no threshold is hit so as to build up a buffer or stock for future consumption should a threshold be hit.
Subjects: 
Catastrophic risk and stochastic thresholds
capital accumulation
precautionary taxation
stock pollution
resource extraction
JEL: 
C61
Q51
Q54
Document Type: 
Working Paper

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