Environmental Policy Under Model Uncertainty: A Robust Optimal Control Approach

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Environmental Policy Under Model Uncertainty: A Robust Optimal Control Approach

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Michael Funke ()
Michael Paetz ()

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Abstract

Model uncertainty is inherent in the design of optimal environmental policy. We investigate the consequences in a simple linear model, where the aim of the policymaker is to stabilize the carbon content of the atmosphere. We study how decision-makers' concerns about robustness alter policy using the Hansen and Sargent (2000, 2003, 2007) approach. The analysis shows that a policymaker, who fears model misspecification should react more aggressively to changes in the stock of atmospheric carbon and implement policies which deliver a greater reduction of emissions.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1938.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1938

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Paper
- Michael Funke & Michael Paetz, 2007. "Environmental Policy Under Model Uncertainty: A Robust Optimal Control Approach," Quantitative Macroeconomics Working Papers 20703, Hamburg University, Department of Economics. [Downloadable!]

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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repec:cup:macdyn:v:6:y:2002:i:1:p:111-44 is not listed on IDEAS
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Other versions:
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Other versions:
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Other versions:
- Kilponen, Juha, 2004. "Robust expectations and uncertain models – A robust control approach with application to the New Keynesian economy," Research Discussion Papers 5/2004, Bank of Finland. [Downloadable!]
Soderstrom, Ulf, 2002. " Monetary Policy with Uncertain Parameters," Scandinavian Journal of Economics, Blackwell Publishing, vol. 104(1), pages 125-45. [Downloadable!] (restricted)
Other versions:
- Ulf Söderström, 2000. "Monetary policy with uncertain parameters," Working Paper Series 13, European Central Bank. [Downloadable!]
- Söderström, Ulf, 1999. "Monetary policy with uncertain parameters," Working Paper Series 83, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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