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...

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...

We study optimal adaptation to climate change when the harmful consequences of global warming are associated with uncertain occurrence of abrupt changes. The adaptation policy entails the accumulation of a particular sort of capital that will eliminate or reduce the catastrophic damage of an...