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Environmental Policy Under Model Uncertainty: A Robust Optimal Control Approach

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Author Info
Michael Funke ()
Michael Paetz ()

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Abstract

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

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Paper provided by Hamburg University, Department of Economics in its series Quantitative Macroeconomics Working Papers with number 20703.

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Date of creation: Mar 2007
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Handle: RePEc:ham:qmwops:20703

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Related research
Keywords: robust control; model uncertainty; environmental policy;

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
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
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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  1. repec:cup:macdyn:v:6:y:2002:i:1:p:111-44 is not listed on IDEAS
  2. Baker, Erin, 2005. "Uncertainty and learning in a strategic environment: global climate change," Resource and Energy Economics, Elsevier, vol. 27(1), pages 19-40, January. [Downloadable!] (restricted)
  3. Roughgarden, Tim & Schneider, Stephen H., 1999. "Climate change policy: quantifying uncertainties for damages and optimal carbon taxes," Energy Policy, Elsevier, vol. 27(7), pages 415-429, July. [Downloadable!] (restricted)
  4. Catarina Roseta-Palma & Anastasios Xepapadeas, 2004. "Robust Control in Water Management," Journal of Risk and Uncertainty, Springer, vol. 29(1), pages 21-34, 07. [Downloadable!]
  5. Hansen, Lars Peter & Sargent, Thomas J., 2003. "Robust control of forward-looking models," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 581-604, April. [Downloadable!] (restricted)
  6. Mort Webster, 2002. "The Curious Role of "Learning" in Climate Policy: Should We Wait for More Data?," The Energy Journal, International Association for Energy Economics, vol. 23(2), pages 97-120.
  7. Keller, Klaus & Bolker, Benjamin M. & Bradford, D.F.David F., 2004. "Uncertain climate thresholds and optimal economic growth," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 723-741, July. [Downloadable!] (restricted)
  8. Leitemo, Kai & Söderström, Ulf, 2004. "Robust Monetary Policy in the New-Keynesian Framework," CEPR Discussion Papers 4805, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Alexei Onatski & James H. Stock, 1999. "Robust monetary policy under model uncertainty in a small model of the U.S. economy," Proceedings, Federal Reserve Bank of San Francisco.
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  10. van Vuuren, Detlef P. & Weyant, John & de la Chesnaye, Francisco, 2006. "Multi-gas scenarios to stabilize radiative forcing," Energy Economics, Elsevier, vol. 28(1), pages 102-120, January. [Downloadable!] (restricted)
  11. Giannoni, Marc P., 2002. "Does Model Uncertainty Justify Caution? Robust Optimal Monetary Policy In A Forward-Looking Model," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 111-144, February. [Downloadable!]
  12. Juha Kilponen, 2004. "Robust expectations and uncertain models – A robust control approach with application to the New Keynesian economy," GE, Growth, Math methods 0404004, EconWPA. [Downloadable!]
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  13. Soderstrom, Ulf, 2002. " Monetary Policy with Uncertain Parameters," Scandinavian Journal of Economics, Blackwell Publishing, vol. 104(1), pages 125-45. [Downloadable!] (restricted)
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  14. Pindyck, Robert S., 2002. "Optimal timing problems in environmental economics," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1677-1697, August. [Downloadable!] (restricted)
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