Optimal Economic Growth under Stochastic Environmental Impact: Sensitivity Analysis

In this work we present an approach toward the sensitivity analysis of optimal economic growth to a negative environmental impact driven by random natural hazards that damage the production output . We use a simplified model of the GDP whose growth leads to the increase of GHG in the atmosphere provided investment in cleaning is insufficient. The hypothesis of the Poisson probability distribution of the natural hazards is used at the first stage of the research. We apply the standard utility function - the discounted integral consumption and construct an optimal investment policy in production and cleaning together with optimal GDP trajectories. We calibrate the model in the global scale and analyze the sensitivity of obtained optimal growth scenarios with respect to uncertain parameters of the Poisson distribution.

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