Can harmful events be another source of environmental traps?

• Published in: Journal of mathematical economics Vol. 89; pp. 29 - 46
• Main Author: Mavi, Can Askan
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.08.2020; Elsevier Sequoia S.A; Elsevier
• Subjects: Adaptation; Developing countries; Economics and Finance; Endogenous; Environmental policy; Environmental quality; Equilibrium; Exploitation; Harmful event; Humanities and Social Sciences; International trade; LDCs; Mitigation; Multiple equilibria; Occurrence hazard; Policies; Probability; Tipping points; Tradeoffs; Mitigation; Tipping points; Multiple equilibria; Harmful event; Occurrence hazard; Adaptation; occurrence hazard; tipping points; multiple equilibria; adaptation; mitigation; harmful event
• ISSN: 0304-4068; 1873-1538
• DOI: 10.1016/j.jmateco.2020.04.005

This paper aims to present a new explanation for environmental traps through the presence of endogenous hazard rate. We show that adaptation and mitigation policies affect the occurrence of environmental traps differently. The former could cause environmental traps, whereas the latter could help society avoid such traps by decreasing the probability of a harmful event occurring. As a result, we present a new trade-off between adaptation and mitigation policies different than the usual dynamic trade-off that is highlighted in many studies and is crucial to developing countries. Contrary to the literature, when an economy is in a trap, an economy with a high environmental quality equilibrium tends to be more conservative in terms of resource exploitation than an economy with a low environmental quality equilibrium, which implies a heterogeneous reaction against the endogenous hazard rate. •The economic reasons behind the environmental traps are explained in detail.•An economy shows a different reaction to risk with respect to its steady-state.•We present a new trade-off between adaptation and mitigation.•This trade-off has qualitative implications for the long-term dynamics of an economy.