Pigouvian tax, abatement policies and uncertainty on the environment

The paper examines the effects of environmental uncertainty on Pigouvian tax and abatement policy used, either separately or contemporaneously, to counteract pollution. We discuss these effects by introducing three kinds of risk: risk on the environmental quality, risk on the impact of pollution and risk on the impact of abatement. For each case we determine the conditions ensuring that risk increases the size of public intervention and provide an economic interpretation and some parallelisms with other risk problems. The last part of the paper generalizes some of our results to the case of N-th order risk changes.