| Abstract: | ABSTRACT. This paper shows that the timing of an investment to reduce the emissions of a stock pollutant under environmental uncertainty depends on the specification of uncertainty, on its level, and on the presence of a lower reflecting barrier for the stock pollutant. With quadratic damages, when variability increases with the level of pollution, emissions should be curbed immediately when uncertainty is large enough; when uncertainty is small, however, its impact is ambiguous. A lower reflecting barrier may also significantly influence the investment threshold. These results highlight the importance of better understanding the links between greenhouse gas concentration and weather variability. |
