We develop a simple model of managing a system subject to pollution damage under risk of an abrupt and random jump in the damage coefficient. The model allows the full dynamic characterization of the optimal emission policies under uncertainty. The results, that imply prudent behavior due to...

We develop a simple model of managing a system subject to pollution damage under risk of an abrupt and random jump in the damage coefficient. The model allows the full dynamic characterization of the optimal emission policies under uncertainty. The results, that imply prudent behavior due to...

We consider a duopolistic industry in which pollution is a by-product of production and firms are given emission permits that they can trade. The common wisdom is that allowing for trade in emission permits promotes efficiency. We demonstrate that this common wisdom cannot automatically be...