POLLUTION-CONTROL IN AN UNCERTAIN ENVIRONMENT

The effects of the threat of occurrence of environmental catastrophes on optimal pollution control are considered. Recent analysis of irreve rsible events is extended to two types of reversible events: single-oc currence and multiple-occurrence (recurrent) events. While it is possi ble that the threat of irreversible events induces more pollution, we show that reversible events, under quite general conditions, induce mo re conservation (less pollution). The analysis is carried out via a si mple method (the 'h delta-method') to,identify optimal steady states b y comparing steady state policies with small variations from them. For recurrent events the optimal state process must approach a unique ste ady state from any initial level. In this case, the h delta-method cha racterizes the dynamic behavior of the optimal state process without a ctually solving for it. (C) 1998 Elsevier Science B.V. All rights rese rved.