Uncertainty,Irreversibility and the Timing Problems of Environmental Policy

Abstract

Most environmental issues and policy designing are uncertain and irreversible; therefore, the timing of environmental policy implementation becomes especially important. This paper establishes a random dynamic programming model and analyzes the optimal timing problems in environmental policy under uncertain variables. This model results indicate that two variables have a significant impact on the timing of environmental policy implementation and they work in opposite directions: on one hand, the more uncertain the economy is, the higher the cost of policies implementation will be, and consequently the incentive to immediately adopt the policy will be stronger. On the other hand, the higher the uncertainty of the environment is, the stronger the irreversibility of ecological harm caused by pollutants per unit will be. Therefore, the government should implement new environmental policies as early as possible in order to gain more ecological benefits.