IDEAS home Printed from https://ideas.repec.org/p/cor/louvco/2010062.html
   My bibliography  Save this paper

The benefits of cooperation under uncertainty: the case of climate change

Author

Listed:
  • BRECHET, Thierry

    (Université catholique de Louvain, CORE and Chair Lhoist Berghmans in Environmental Eonomics and Management, B- 1348 Louvain-la-Neuve, Belgium)

  • THENIE, Julien

    (Université catholique de Louvain, CORE and Chair Lhoist Berghmans in Environmental Eonomics and Management, B- 1348 Louvain-la-Neuve, Belgium; ORDECSYS Company, Chêne-Bougeries, Switzerland.)

  • ZEIMES, Thibaut

    (Université catholique de Louvain, CORE and Chair Lhoist Berghmans in Environmental Eonomics and Management, B- 1348 Louvain-la-Neuve, Belgium)

  • ZUBER, Stéphane

    (Université catholique de Louvain, CORE and Chair Lhoist Berghmans in Environmental Eonomics and Management, B- 1348 Louvain-la-Neuve, Belgium)

Abstract

This article presents an analysis of the behavior of countries defining their climate policies in an uncertain context. The analysis is made using the S-CWS model, a stochastic version of an integrated assessment growth model. The model includes a stochastic definition of the climate sensitivity parameter. We show that the impact of uncertainty on policy design critically depends on the shape of the damage function. We also examine the benefits of cooperation in the context of uncertainty: we highlight the existence of an additional benefit of cooperation, namely risk reduction.

Suggested Citation

  • BRECHET, Thierry & THENIE, Julien & ZEIMES, Thibaut & ZUBER, Stéphane, 2010. "The benefits of cooperation under uncertainty: the case of climate change," LIDAM Discussion Papers CORE 2010062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2010062
    as

    Download full text from publisher

    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2010.html
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "WITCH. A World Induced Technical Change Hybrid Model," Working Papers 2006_46, Department of Economics, University of Venice "Ca' Foscari".
    2. Carlo Carraro & Valentina Bosetti & Alessandra Sgobbi & Massimo Tavoni, 2008. "Delayed Action and Uncertain Targets. How Much Will Climate Policy Cost?," Working Papers 2008_27, Department of Economics, University of Venice "Ca' Foscari".
    3. J. Thénié & Ch. Delft & J. Vial, 2007. "Automatic Formulation of Stochastic Programs Via an Algebraic Modeling Language," Computational Management Science, Springer, vol. 4(1), pages 17-40, January.
    4. Bréchet, Thierry & Gerard, Francois & Tulkens, Henry, 2007. "Climate Coalitions: A Theoretical and Computational Appraisal," Coalition Theory Network Working Papers 10270, Fondazione Eni Enrico Mattei (FEEM).
    5. von Below, David & Persson, Torsten, 2008. "Uncertainty, Climate Change and the Global Economy," Seminar Papers 757, Stockholm University, Institute for International Economic Studies.
    6. Manne, Alan & Mendelsohn, Robert & Richels, Richard, 1995. "MERGE : A model for evaluating regional and global effects of GHG reduction policies," Energy Policy, Elsevier, vol. 23(1), pages 17-34, January.
    7. Thierry Bréchet & Johan Eyckmans & François Gerard & Philippe Marbaix & Henry Tulkens & Jean-Pascal Van Ypersele, 2010. "The impact of the unilateral EU commitment on the stability of international climate agreements," Climate Policy, Taylor & Francis Journals, vol. 10(2), pages 148-166, March.
    8. Marc Germain & Philippe Toint & Henry Tulkens & Aart Zeeuw, 2006. "Transfers to Sustain Dynamic Core-Theoretic Cooperation in International Stock Pollutant Control," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 251-274, Springer.
    9. Gollier, Christian, 2002. "Discounting an uncertain future," Journal of Public Economics, Elsevier, vol. 85(2), pages 149-166, August.
    10. Johan Eyckmans & Henry Tulkens, 2006. "Simulating Coalitionally Stable Burden Sharing Agreements for the Climate Change Problem," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 218-249, Springer.
    11. Helgeson, Jennifer & Dietz, Simon & Atkinson, Giles D. & Hepburn, Cameron & Sælen, Håkon, 2009. "Siblings, not triplets: social preferences for risk, inequality and time in discounting climate change," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-28.
    12. Chichilnisky, Graciela, 2000. "An axiomatic approach to choice under uncertainty with catastrophic risks," Resource and Energy Economics, Elsevier, vol. 22(3), pages 221-231, July.
    13. Frederick Ploeg & Aart Zeeuw, 1992. "International aspects of pollution control," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 2(2), pages 117-139, March.
    14. Shaw, W. Douglass & Woodward, Richard T., 2008. "Why environmental and resource economists should care about non-expected utility models," Resource and Energy Economics, Elsevier, vol. 30(1), pages 66-89, January.
    15. Thierry Bréchet & Carmen Camacho & Vladimir Veliov, 2014. "Model predictive control, the economy, and the issue of global warming," Annals of Operations Research, Springer, vol. 220(1), pages 25-48, September.
    16. Christian van Delft, 2007. "Automatic Formulation of Stochastic Programs Via an Algebraic Modeling Language," Post-Print halshs-00120971, HAL.
    17. Kenneth Arrow, 2009. "A note on uncertainty and discounting in models of economic growth," Journal of Risk and Uncertainty, Springer, vol. 38(2), pages 87-94, April.
    18. William D. Nordhaus & David Popp, 1997. "What is the Value of Scientific Knowledge? An Application to Global Warming Using the PRICE Model," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-45.
    19. Bosetti, Valentina & Tavoni, Massimo, 2009. "Uncertain R&D, backstop technology and GHGs stabilization," Energy Economics, Elsevier, vol. 31(Supplemen), pages 18-26.
    20. Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December.
    21. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    22. Gabriele C. Hegerl & Thomas J. Crowley & William T. Hyde & David J. Frame, 2006. "Climate sensitivity constrained by temperature reconstructions over the past seven centuries," Nature, Nature, vol. 440(7087), pages 1029-1032, April.
    23. Basili, Marcello & Chateauneuf, Alain & Fontini, Fulvio, 2008. "Precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catastrophic losses," Ecological Economics, Elsevier, vol. 67(3), pages 485-491, October.
    24. Dana L. Royer & Robert A. Berner & Jeffrey Park, 2007. "Climate sensitivity constrained by CO2 concentrations over the past 420 million years," Nature, Nature, vol. 446(7135), pages 530-532, March.
    25. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-765, September.
    26. Aharon Ben-Tal & Boaz Golany & Arkadi Nemirovski & Jean-Philippe Vial, 2005. "Retailer-Supplier Flexible Commitments Contracts: A Robust Optimization Approach," Manufacturing & Service Operations Management, INFORMS, vol. 7(3), pages 248-271, February.
    27. Christian van Delft & J. Thénié & J. P. Vial, 2007. "Automatic Formulation of Stochastic Programs Via an Algebraic Modeling Language," Post-Print halshs-00126783, HAL.
    28. Philippe Ambrosi & Jean-Charles Hourcade & Stéphane Hallegatte & Franck Lecocq & Patrice Dumas & Minh Ha Duong, 2009. "Optimal Control Models and Elicitation of Attitudes towards Climate Damages," International Series in Operations Research & Management Science, in: Jerzy A. Filar & Alain Haurie (ed.), Uncertainty and Environmental Decision Making, chapter 0, pages 177-209, Springer.
    29. James M. Murphy & David M. H. Sexton & David N. Barnett & Gareth S. Jones & Mark J. Webb & Matthew Collins & David A. Stainforth, 2004. "Quantification of modelling uncertainties in a large ensemble of climate change simulations," Nature, Nature, vol. 430(7001), pages 768-772, August.
    30. Valentina Bosetti, Carlo Carraro, Marzio Galeotti, Emanuele Massetti, Massimo Tavoni, 2006. "A World induced Technical Change Hybrid Model," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 13-38.
    31. Thierry Bréchet & François Gerard & Henry Tulkens, 2011. "Efficiency vs. Stability in Climate Coalitions: A Conceptual and Computational Appraisal," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 49-76.
    32. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    33. Christian van Delft & Jean-Philippe Vial & J. Thénié, 2007. "Automatic Formulation of Stochastic Programs Via an Algebraic Modeling Language," Post-Print hal-00471422, HAL.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thierry Brechet and Henry Tulkens, 2015. "Climate Policies: A Burden, or a Gain?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wei, Yi-Ming & Mi, Zhi-Fu & Huang, Zhimin, 2015. "Climate policy modeling: An online SCI-E and SSCI based literature review," Omega, Elsevier, vol. 57(PA), pages 70-84.
    2. Tol, Richard S.J., 2013. "Targets for global climate policy: An overview," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 911-928.
    3. Bosetti, Valentina & Carraro, Carlo & De Cian, Enrica & Massetti, Emanuele & Tavoni, Massimo, 2013. "Incentives and stability of international climate coalitions: An integrated assessment," Energy Policy, Elsevier, vol. 55(C), pages 44-56.
    4. Diana Dimitrova, 2018. "The 2018 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 98-152.
    5. Hjort, Ingrid, 2016. "Potential Climate Risks in Financial Markets: A Literature Overview," Memorandum 01/2016, Oslo University, Department of Economics.
    6. Kenneth Gillingham & William D. Nordhaus & David Anthoff & Geoffrey Blanford & Valentina Bosetti & Peter Christensen & Haewon McJeon & John Reilly & Paul Sztorc, 2015. "Modeling Uncertainty in Climate Change: A Multi-Model Comparison," NBER Working Papers 21637, National Bureau of Economic Research, Inc.
    7. Matthias Schmidt & Hermann Held & Elmar Kriegler & Alexander Lorenz, 2013. "Climate Policy Under Uncertain and Heterogeneous Climate Damages," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(1), pages 79-99, January.
    8. Fleurbaey, Marc & Zuber, Stéphane, 2015. "Discounting, beyond utilitarianism," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-52.
    9. Aldred, Jonathan, 2013. "Justifying precautionary policies: Incommensurability and uncertainty," Ecological Economics, Elsevier, vol. 96(C), pages 132-140.
    10. Henry Tulkens, 2016. "COP 21 and Economic Theory: Taking Stock," Revue d'économie politique, Dalloz, vol. 126(4), pages 471-486.
    11. Thierry Brechet and Henry Tulkens, 2015. "Climate Policies: A Burden, or a Gain?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    12. W. Botzen & Jeroen Bergh, 2014. "Specifications of Social Welfare in Economic Studies of Climate Policy: Overview of Criteria and Related Policy Insights," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(1), pages 1-33, May.
    13. Nævdal, Eric & Vislie, Jon, 2013. "Resource Depletion and Capital Accumulation under Catastrophic Risk: Policy Actions against Stochastic Thresholds and Stock Pollution," Memorandum 24/2013, Oslo University, Department of Economics.
    14. Carraro, Carlo & De Cian, Enrica & Nicita, Lea & Massetti, Emanuele & Verdolini, Elena, 2010. "Environmental Policy and Technical Change: A Survey," International Review of Environmental and Resource Economics, now publishers, vol. 4(2), pages 163-219, October.
    15. Lessmann, Kai & Kornek, Ulrike & Dellink, Rob & Emmerling, Johannes & Eyckmans, Johan & Nagashima, Miyuki & Weikard, Hans-Peter & Yang, Zili, 2014. "The Stability and Effectiveness of Climate Coalitions: A Comparative Analysis of Multiple Integrated Assessment Models," Climate Change and Sustainable Development 163598, Fondazione Eni Enrico Mattei (FEEM).
    16. Nævdal, Erik & Vislie, Jon, 2012. "Resource Depletion and Capital Accumulation under Catastrophic Risk: The Role of Stochastic Thresholds and Stock Pollution," Memorandum 24/2012, Oslo University, Department of Economics.
    17. J. Farmer & Cameron Hepburn & Penny Mealy & Alexander Teytelboym, 2015. "A Third Wave in the Economics of Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(2), pages 329-357, October.
    18. KORNEK, Urik & LESSMANN, Kai & TULKENS, Henry, 2014. "Transferable and non transferable utility implementations of coalitional stability in integrated assessment models," LIDAM Discussion Papers CORE 2014035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    19. Tulkens, Henry, 2016. "COP 21 and Economic Theory: Taking Stock," ET: Economic Theory 236237, Fondazione Eni Enrico Mattei (FEEM).
    20. Hassler, J. & Krusell, P. & Smith, A.A., 2016. "Environmental Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1893-2008, Elsevier.

    More about this item

    Keywords

    cooperation; uncertainty; climate change; integrated assessment model;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2010062. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alain GILLIS (email available below). General contact details of provider: https://edirc.repec.org/data/coreebe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.