Essays on environmental policy in dynamic models

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The book explores the unique challenges of evaluating environmental policy in a dynamic context. It begins with a review of relevant literature and examines three key areas. First, it discusses the impact of the elasticity of substitution, analyzing utility functions such as Leontief, CES, and Cobb-Douglas in greater detail. The findings reveal that the dynamic behavior of the model is significantly influenced by actual elasticities, a factor often overlooked in previous studies. Second, the text introduces productivity shocks and sudden capital loss while addressing delays and inaccuracies in political responses. Notably, the assumption of incomplete information leading to inadequate policy adaptations has not been adequately considered in existing models. Third, it investigates changes in preferences due to exogenous factors, challenging the common assumption of constant preferences. The authors argue that long-term preferences can be influenced by information regarding the risks and benefits of certain technologies, such as nuclear power, leading to shifts towards more consumption-friendly or environmentally-friendly attitudes. The main chapters focus on dynamic aspects that are often sidelined in discussions, emphasizing their importance in long-term policy evaluation. Due to the complexity of the models, numerical simulations are employed to derive results, as closed-form solutions are generally unattainable.