The Korean Economic Review
Investment Option Game for Controlling Global Stock Pollution under Uncertainty
Hojeong Park (Korea University)Year 2011Vol. 27No. 1
Stock pollution involves a tradeoff between irreversible environmental impacts andinvestment costs. Such a tradeoff creates opposing incentives between early- and late-policyadoptions to reduce stock pollution emissions. Earlier studies consider the effects of theuncertainty of environmental impacts on investment timing. This paper extends these studiesby considering interactions between two players in order to abate stock pollution. When theuncertainty of environmental damage exists, the absence of cooperative policy may result infurther environmental damage because the irreversibility of investments dominates that ofenvironmental damages.