ACCOUNTING FOR GLOBAL WARMING RISKS - RESOURCE-MANAGEMENT UNDER EVENTUNCERTAINTY

Optimal management of atmospheric pollution is discussed with a specia l emphasis on the uncertainty concerning the occurrence of undesirable events associated with the greenhouse effect, The uncertainty conside red here stems from our ignorance of the exact pollution level require d to trigger the event rather than from the genuinely stochastic natur e of the processes involved. Taking atmospheric pollution level as the state variable, it is found that uncertainty implies the existence of an equilibrium interval, within which the emission rate of the greenh ouse gases should be kept equal to the natural removal rate of these g ases. Processes initiated outside the equilibrium interval must conver ge monotonically to its nearest endpoint. The determination of the int erval requires no knowledge of the optimal policy, In contrast, ignori ng event occurrence risk implies a single equilibrium level, attractin g the optimal process from any initial level.