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Climate Policy under Spatial Heat Transport: Cooperative and Noncooperative Regional Outcomes

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  • Yongyang Cai
  • William Brock
  • Anastasios Xepapadeas
  • Kenneth Judd

Abstract

We build a novel stochastic dynamic regional integrated assessment model (IAM) of the climate and economic system including a number of important climate science elements that are missing in most IAMs. These elements are spatial heat transport from the Equator to the Poles, sea level rise, permafrost thaw and tipping points. We study optimal policies under cooperation and noncooperation between two regions (the North and the Tropic-South) in the face of risks and recursive utility. We introduce a new general computational algorithm to find feedback Nash equilibrium. Our results suggest that when the elements of climate science are ignored, important policy variables such as the optimal regional carbon tax and adaptation could be seriously biased. We also find the regional carbon tax is significantly smaller in the feedback Nash equilibrium than in the social planner's problem in each region, and the North has higher carbon taxes than the Tropic-South.

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  • Yongyang Cai & William Brock & Anastasios Xepapadeas & Kenneth Judd, 2019. "Climate Policy under Spatial Heat Transport: Cooperative and Noncooperative Regional Outcomes," Papers 1909.04009, arXiv.org.
    • Handle: RePEc:arx:papers:1909.04009
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    References listed on IDEAS

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    Cited by:

    1. Yongyang Cai & William Brock & Anastasios Xepapadeas, 2023. "Climate Change Impact on Economic Growth: Regional Climate Policy under Cooperation and Noncooperation," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(3), pages 569-605.
    2. Brock, William & Xepapadeas, Anastasios, 2021. "Regional climate policy under deep uncertainty: robust control and distributional concerns," Environment and Development Economics, Cambridge University Press, vol. 26(3), pages 211-238, June.
    3. Wagener, Florian & de Zeeuw, Aart, 2021. "Stable partial cooperation in managing systems with tipping points," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    4. Yongyang Cai, 2020. "The Role of Uncertainty in Controlling Climate Change," Papers 2003.01615, arXiv.org, revised Oct 2020.
    5. William Brock & Anastasios Xepapadeas, 2020. "Spatial Environmental and Resource Economics," DEOS Working Papers 2002, Athens University of Economics and Business.

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