Complex, dynamic environmental policies

The environment provides two different kinds of services: consumptive (input for conventional goodsʹ production, pollution) and non-consumptive (amenity). The environment, which is treated as a renewable resource, might be harvested to obtain the first service, pollution (e.g., emissions, waste). However, reducing current pollution is costly and takes time; this adjustment process provides the second state. We show in this paper that the associated optimal environmental policies may be complex. More precisely, dampened oscillations and limit cycles (pollution following abatement and so on) may describe an optimal strategy even for strictly concave technologies and preferences. However, complex strategies—limit cycles and instabilities—are restricted to weakly green social preferences.