Dynamic optimal control of pollution abatement investment under emission permits

In this paper, we investigate the relationship between the emission permits and the abatement investment. Our results show that the system admits saddle point steady state equilibrium, and that the allocation coefficient of emission abatement labor depends on the monotonicity of the indirect utility function. Further, a sensitivity analysis is conducted to study the effect of changing monetary parameters on optimal emission level, etc. Furthermore, we illustrate the general solutions, and present some numerical examples.