Optimal climate policy under the possibility of a catastrophe
AbstractThis paper concerns optimal emissions of greenhouse gases when catastrophic consequences are possible. A numerical model is presented which takes into account both continuous climate-feedback damages as well as the possibility of a catastrophic outcome. The uncertainty in the model concerns whether or not a future catastrophe will occur. However, the welfare losses imposed by such an outcome are assumed known to the decision-maker. An important result is that the possibility of a climate catastrophe is a major argument for greenhouse gas abatement even in absence of continuous damage. Special attention is given to analyses on the probability of a catastrophe and the pure rate of time preferences, and the implicit values of these parameters are calculated if the Rio stabilisation target is assumed to be optimal. Finally, the expected value of perfect information about the probability of the arrival of a catastrophe is estimated.
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Bibliographic InfoArticle provided by Elsevier in its journal Resource and Energy Economics.
Volume (Year): 21 (1999)
Issue (Month): 3-4 (August)
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Web page: http://www.elsevier.com/locate/inca/505569
Other versions of this item:
- Jon Gjerde & Sverre Grepperud & Snorre Kverndokk, 1998. "Optimal Climate Policy under the Possibility of a Catastrophe," Discussion Papers 209, Research Department of Statistics Norway.
- D6 - Microeconomics - - Welfare Economics
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
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