Optimal pollution control, irreversibilities, and the value of future information

This paper focuses on the issue of optimal pollution control when either pollution itself is irreversible or when some characteristic of the environmental resource is irreversibly destroyed in the course of growing pollution. It is shown that exhausting the assimilative capacity through too heavy pollution is never optimal unless the rate of social time preference is sufficiently high. The paper also investigates the case that decisions about irreversible developments have to be made under uncertainty today when the decision maker faces the prospect of better information about the irreversible damage at some future point in time. A non-negative quasi-option value is shown to exist as in the Arrow-Fisher-Henry model that relates to natural resource deletion by projects of industrial development.