Abstract

Global commons problems, such as climate change, are often affected by severe uncertainty. The paper examines the effect of uncertainty on pollution emissions and welfare in a strategic context. We find that emissions are always lower under uncertainty than under certainty, reflecting risk-reducing considerations. We show that uncertainty can have a net positive impact on the welfare of risk-averse polluters. We extend the analysis to increases in risk, increases in risk-aversion, and to risk heterogeneity.

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