Accumulative Pollution, Environmental Regulation and Environmental Costs: Dynamic Approach

Abstract

This article analyses how social preference towards environmental costs for addressing environmental concerns can have an impact on the steady state solution concerning the stock of accumulative pollutants and the optimal environmental regulatory stringency as well as on the initial value of the optimal environmental regulatory stringency that leads to the steady state solution. The results found that the steady state value of the optimal environmental regulatory stringency was higher, and the steady state value of the stock of accumulative pollutants was lower in the case where sufficient liability costs for environmental damages were estimated, compared with the case where the estimation of liability costs was insufficient. In addition, the results showed that the steady state value of optimal environmental regulatory stringency was higher and the value of the stock of accumulative pollutants was lower in the case where the discount rate provided sufficient consideration for future generations, than when the discount rate provided insufficient consideration. Moreover, the study also indicated that, where the initial value of the stock of accumulative pollutants was within a given range, in the cases where sufficient liability costs for environmental damages were estimated and where the discount rate provided sufficient consideration for future generations, the initial value of the optimal environmental regulatory stringency was found to be at a higher level, compared to the initial value of the optimal environmental regulatory stringency for the cases where there was insufficient estimation of liability costs and when the discount rate provided insufficient consideration.

Keywords

• accumulative pollution
• environmental regulatory stringency
• liability cost for environmental damage
• discount rate