Optimal Timing Problems in Environmental Economics

Robert S. Pindyck

March 2001

Robert S. Pindyck, March 2001

Because of the uncertainties and irreversibilities that are often inherent in envi-ronmental degradation, its prevention, and its economic consequences, environmental policy design can involve important problems of timing. I use a simple two-period model to il-lustrate these optimal timing problems and their implications for environmental policy. I then lay out and solve a continuous-time model of policy adoption in which the policy itself entails sunk costs, and environmental damage is irreversible. The model has two stochastic state variables; one captures uncertainty over environmental change, and the other captures uncertainty over the social costs of environmental damage. Solutions of the model are used to show the implications of these two types of uncertainty for the timing of policy adoption.

For Associates Only

As a benefit to our Associates, the latest Working Papers are embargoed for a period of up to six months before becoming accessible to the public. If you are interested in becoming an Associate or learning more about the benefits of sponsorship, please click here, or email us at

If you are a CEEPR Associate or CEEPR staff member, please visit the login page here: