Regulating Activities with Catastrophic Environmental Effects
In this paper a catastrophe is an unforeseen event which reduces society’s level of consumption to zero. Two types of catastrophe are analyzed. In one case catastrophe results in a temporary reduction in utility; in the other, catastrophe is irreversible and is tantamount to truncating the planning horizon. The first case characterizes certain types of pollution problems such as radioactive pollution produced by a nuclear power plant. An example of an irreversible catastrophe is the inadvertent depletion of a nonrenewable resource for which no substitute is available.