A tail-payoff puzzle in dynamic pollution control

摘要: We analyze dynamic models with negative externalities occurring from production capital and input use. uncover a puzzle related to such models: evaluated social welfare function, the steady-state outcome of socially optimal policy, thus tail corresponding payoff sequence, may yield smaller than market outcome. The main questions we address are under what conditions this phenomenon arises how general it is. show that there always Pareto-optimal policies which lead when discount rate is fixed. In addition discounting, driving force our results periodic pollution profits linked capital. demonstrate model for controlling phosphorus losses crop production. argue should be taken into account in policy analysis problems, including externalities.