We develop a simple model of managing a system subject to pollution damage, such as climate change, under the risk of an abrupt and random jump in the damage function. The model allows the full dynamic characterization of the optimal emission policies under uncertainty. The results imply...

Complex dynamic systems can undergo changes in feedbacks between system components causing a rapid and persistent shift in system behavior (“regime shifts”), and potentially reduce welfare from declining provision of important ecosystem services. In this paper, we provide an analytical...

The adaptation vs. mitigation dilemma is considered by analyzing a simple dynamic model of managing a polluting process subject to the risk of abrupt occurrences of harmful events. The occurrence hazard can be mitigated by reducing the polluting emissions, while the occurrence damage can be...